Storus Corp. v. Aroa Marketing Inc.

CASE HISTORY and DISPOSITION: Action by Storus Corp. against Aroa Marketing Inc. and SkyMall Inc., what is ed alleging trademark infringement and other claims. On plaintiff’s motion for partial summary judgment as to defendants’ liability on trademark claim. Granted in part and denied in part.

HEADNOTES:
TRADEMARKS AND UNFAIR TRADE PRACTICES

[**1H] Types of marks — Secondary meaning (327.02)

Types of marks — Descriptive — Particular marks (327.0303)

Plaintiff is granted summary judgment that it owns valid, protectable trademark in term “Smart Money Clip” for combination money clip and card holder, since plaintiff holds federal registration for mark, since defendants have not shown that “smart” is understood as “generally laudatory” descriptive term, or explained how it is descriptive of product having ability to hold cash and credit cards simultaneously, and since, even if it is assumed that mark is descriptive in nature, defendants have offered no evidence that mark lacks secondary meaning.

Plaintiff is granted summary judgment that defendant’s use of plaintiff’s “Smart Money Clip” trademark, for combination money clip and card holder, in keyword advertisement on [*1033] Internet is likely to cause initial interest confusion, since defendant uses mark identical to plaintiff’s mark to sell same type of product, and both parties market their products over Internet, since reference in advertisement to defendant’s “Steinhausen” mark, even assuming that it dispels confusion as to source, does not preclude finding of initial interest confusion, since plaintiff has presented evidence showing that more than 1,000 searches using its mark were in fact diverted to defendant’s Web site, since plaintiff has offered evidence that defendant had actual knowledge of plaintiff’s mark before adopting “smart money clip” as keyword, and since defendant has failed to make strong showing that remaining factors weigh against finding of likelihood of confusion.
Plaintiff is denied summary judgment that defendant’s use of phrase “smart money clip” in description of product offered for sale on defendant’s Web site is likely to cause initial interest confusion with plaintiff’s “Smart Money Clip” trademark for combination money clip and card holder, since defendant has not conceded that consumer who enters term “smart money clip” in search engine for defendant’s site would be directed to page containing description of defendant’s competing product, since it is undisputed that defendant’s Web page previously included words “smart money clip,” but there is no evidence, or at best triable issue, as to whether defendant’s search engine would direct consumer using search term “smart money clip” to that page, and since there is no evidence that, at present time, Web page advertising defendant’s competing product contains phrase “smart money clip.”

Before the Court is plaintiff Storus Corporation’s (“Storus”) Motion for Partial Summary Judgment of Trademark Infringement, filed December 28, 2007. Defendants Aroa Marketing, Inc. (“Aroa”) and Skymall, Inc. (“Skymall”) have jointly filed opposition, to which Storus has replied. Having read and considered the papers filed in support of and in opposition to the motion, the Court rules as follows. n1

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n1 By order filed February 7, 2008, the Court took the matter under submission.

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BACKGROUND

Storus has marketed and sold a money clip under the mark “Smart Money Clip” since 1997. ( See Kaminski Decl., filed December 28, 2007, Para. 4.) Said money clip is covered by a patent owned by Storus, specifically, by United States Patent 6,082,422, ( see id. Paras. 2, 4), which patent “relates to a combination money clip and card holder adapted to retain paper currency as well as [to] removably store flexible cards, e.g., credit cards, and sized to be conveniently carried in a pocket or purse,” ( see id. Ex. C at col.1, ll. 17-21). Storus sells the Smart Money Clip through “various retail channels, including internet stores, and mail order catalogs, brick and mortar’ stores and television shopping channels.” ( See id. Para. 5.) n2

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n2 Defendants do not dispute any of the facts set forth in the preceding paragraph.

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In its First Amended Consolidated Complaint, Storus alleges, as its Sixth Claim, that defendants have infringed Storus’ mark Smart Money Clip by using said mark in connection with sales of products that compete with Storus’ money clips. By the instant motion, Storus seeks partial summary judgment on the issue of defendants’ liability as to the Sixth Claim. Specifically, Storus asserts, the manner in which defendants have used the mark “Smart Money Clip” in connection with a “search engine” creates “initial interest confusion with Storus’ trademark.” ( See Pl.’s Mot. at 9:26-27; 11:2-10.) [*1034]

LEGAL STANDARD

Rule 56 of the Federal Rules of Civil Procedure provides that a court may grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” See Fed. R. Civ. P. 56(c).

The Supreme Court’s 1986 “trilogy” of Celotex Corp. v. Catrett , 477 U.S. 317 (1986), Anderson v. Liberty Lobby, Inc. , 477 U.S. 242 (1986), and Matsushita Electric Industrial Co. v. Zenith Radio Corp. , 475 U.S. 574 (1986), requires that a party seeking summary judgment show the absence of a genuine issue of material fact. Once the moving party has done so, the nonmoving party must “go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file,’ designate specific facts showing that there is a genuine issue for trial.'” See Celotex , 477 U.S. at 324 (quoting Rule 56(c)). “When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita , 475 U.S. at 586. “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Liberty Lobby , 477 U.S. at 249-50 (citations omitted). ” [I]nferences to be drawn from the underlying facts,” however, “must be viewed in the light most favorable to the party opposing the motion.'” See Matsushita , 475 U.S. at 587 (quoting United States v. Diebold, Inc. , 369 U.S. 654, 655 (1962)).

DISCUSSION

As noted, Storus seeks partial summary judgment on its claim for trademark infringement. To establish a trademark infringement claim, the plaintiff must establish that the defendant has used a mark “confusingly similar to a valid, protectable trademark of [the plaintiff].” See Brookfield Communications, Inc. v. West Coast Entertainment Corp. , 174 F. 3d 1036, 1046 [50 USPQ2d 1545 ] (9th Cir. 1999).

A. Valid, Protectable Trademark

On March 20, 2001, the Patent and Trademark Office (“PTO”), upon application by Storus, registered Storus’ mark Smart Money Clip for use in connection with “cases with clips adapted to hold and retain personal identification, money both paper and coin, credit cards, memo items, business cards, personal accessories, and the like and adapted to be carried in a user’s pocket, purse, handbag or pack.” ( See Kaminski Decl. Ex. D.)

Go to Headnotes [**1R] Here, defendants argue the Smart Money Clip is descriptive, under the theory that “smart” is a “generally laudatory” descriptive term not entitled to protection in the absence of a showing by Storus of secondary meaning. See , e.g. , Hoover Co. v. Royal Appliance Mfg. Co. , 238 F. 3d 1357, 1360 [57 USPQ2d 1720 ] (Fed. Cir. 2001) (holding mark “Number One in Floorcare” was “generally laudatory phrase” not entitled to trademark protection in light of absence of evidence of secondary meaning; noting, “Self-laudatory or puffing marks are regarded as a condensed form of describing the character or quality of the goods.”).

Defendants fail to offer any evidence that “Smart Money Clip” is understood as a “generally laudatory term,” and the cases identifying terms found to be “generally laudatory” concerned marks distinguishable from Storus’ mark. See , e.g. , In re Best Software, Inc. , 58 U.S.P.Q. 2d 1314 (T.T.A.B. 2001) (setting forth as examples of generally laudatory marks “The Best Beer in America” and “The Ultimate Bike Rack”). Defendants also fail to explain why “smart” is descriptive of the function performed by Storus’ money clips, specifically, having the ability to hold cash and credit cards simultaneously. Even assuming, [*1035] arguendo , “Smart Money Clip” is descriptive in nature, the PTO is presumed to have found the mark acquired secondary meaning, see Leelanau , 502 F. 3d at 514 (holding where mark is descriptive, “its registration must have been on the basis of the [] PTO’s determination that [the] mark had obtained a secondary meaning”); consequently, defendants have the burden to “prove the absence of secondary meaning,” see id. Defendants fail to offer any evidence to support a finding of an absence of secondary meaning, and, thus, fail to create a triable issue of fact.

Accordingly, the Court finds Storus has shown no material issue exists as to the validity of the mark Smart Money Clip.

B. Likelihood of Confusion

As noted, Storus argues the manner in which defendants have used “Smart Money Clip” has created “initial interest confusion.”

“Initial interest confusion occurs when the defendant uses the plaintiff’s trademark in a manner calculated to capture initial consumer attention, even though no actual sale is finally completed as a result of the confusion.” Interstellar Starship Services, Ltd. v. Epix Inc. , 304 F. 3d 936, 941 [64 USPQ2d 1514 ] (9th Cir. 2002) (internal quotation and citation omitted). For example, initial interest confusion can occur where a defendant includes a plaintiff’s mark in “metatags” found on the defendant’s website, thereby causing consumers who enter the plaintiff’s mark into a search engine to obtain a list of results that includes the defendant’s website, after which some of those consumers will select defendant’s website from the list. See Brookfield , 174 F. 3d at 1058, 1062-65 (holding “Lanham Act bars [defendant] from including in its metatags any term confusingly similar with [plaintiff’s] mark”). “Although there is no source confusion in the sense that consumers know they are patronizing [defendant] rather than [plaintiff], there is nevertheless initial interest confusion in the sense that, by using [plaintiff’s mark] to divert people looking for [plaintiff’s product] to its web site, [defendant] improperly benefits from the goodwill that [plaintiff] developed in its mark.” See id.

In determining whether a defendant’s use of a mark creates initial interest confusion, a trier of fact considers the eight ” Sleekcraft factors”: “(1) the similarity of the marks; (2) the relatedness or proximity of the two companies’ products or services; (3) the strength of the registered mark; (4) the marketing channels used; (5) the degree of care likely to be exercised by the purchaser in selecting goods; (6) the accused infringers’ intent in selecting its mark; (7) evidence of actual confusion; and (8) the likelihood of expansion in product lines.” See Interstellar Starship , 304 F. 3d at 942. n3 “[I]n the context of the Web, the three most important Sleekcraft factors are (1) the similarity of the marks, (2) the relatedness of the goods or services, and (3) the parties’ simultaneous use of the Web as a marketing channel.” See id. (internal quotation and citation omitted). “When this controlling troika,’ or internet trinity,’ suggests confusion is likely, the other factors must weigh strongly against a likelihood of confusion to avoid the finding of infringement.” Id. (internal quotation, citation, and alteration omitted). Consequently, where the “factors of the internet trilogy” weigh against the defendant, a finding of likelihood of confusion is proper unless the defendant shows the remaining Sleekcraft factors “weigh strongly against a likelihood of confusion.” See Perfumebay.com v. eBay Inc. , 506 F. 3d 1165, 1174-75 [84 USPQ2d 1865 ] (Fed. Cir. 2007); see also GoTo.Com, Inc. v. Walt Disney Co. , 202 F. 3d 1199, 1207 [53 USPQ2d 1652 ] (Fed. Cir. 2002) (holding where “marks are similar, [the parties] offer similar services, and [the parties] both use the web as their marketing channel,” confusion is “indeed likely”).

n4 Defendants offer no evidence to dispute any of the facts set forth in the following section. Defendants have, however, raised evidentiary objections to some of the evidence from which such facts are derived. To the extent the Court has relied on any such evidence, the objections thereto are overruled for the reasons stated by Storus. To the extent the Court has not relied on such evidence, the Court does not reach the objections.

Google Inc., an internet search engine, operates an advertising program titled “AdWords,” under which an account holder can “create ads and choose keywords.” ( See Choi Decl., filed December 28, 2007, Para. 4.) Under this program, “[w]hen people search on Google using one of the account holder’s keywords, the account holder’s ad may appear next to the search results, and people can then click on the account holder’s ad.” ( See id. ) Aroa, an AdWords account holder, chose various keywords for inclusion in the program, including “smart money clip,” and provided Google with an ad to be generated when a user searched using any of the chosen keywords. ( See id. Ex. B at 3, 5.) In particular, under the AdWords program, if a consumer searched on Google for the phrase “smart money clip,” the following Aroa ad may appear on the results page: ( See Andara Decl. Ex. G.) n5 The “Smart Money Clip” portion of the ad is underlined and set forth in a larger font than that used in the rest of the text in the ad. ( See id. )

Smart Money Clip

www.steinhausenonline.com Elegant Steinhausen accessories. Perfect to add to any collection.

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n5 Storus asserts, and defendants do not dispute, that defendants stopped using “smart money clip” as a keyword in the AdWorks program at some point after the instant action was filed. Consistent with Storus’ assertion, documents produced by Google, in the instant action, refer to the “status” of Aroa’s keyword “smart money clip” as “paused,” as opposed to “active.” ( See Choi Decl. Ex. G at 5.)

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During the period from November 13, 2006 to October 12, 2007, the above advertisement was displayed 36,164 times in response to a search for “smart money clip,” and such displays resulted in 1,374 “clicks,” i.e., the consumer “clicked on [Aroa’s] ad after viewing the page where it was displayed.” ( See Choi Decl. Para. 5, Ex. B at 4-5; Andara Decl. Ex. E. at STOR00673-74.)

b. Analysis

Go to Headnotes [**2R] In light of the above undisputed facts, the Court finds Aroa used a mark identical to Storus’ mark with respect to the same type of product, a money clip, and that both Storus and Aroa marketed their respective money clip products over the internet. Defendants’ argument, that the first of the “factors of the internet trilogy,” similarity of the marks, nevertheless weighs in Aroa’s favor, is unpersuasive. Although, as defendants point out, Aroa’s Google ad includes a reference to Aroa’s mark “Steinhausen,” the subject ad, as noted, begins with a mark identical to Storus’ mark, underlined, and in a font size larger than that used for any other text in the ad. Defendants appear to argue that consumers would know Steinhausen is the mark of a company different from that of the company owning the Smart Money Clip mark, and, thus, if consumers proceed to Aroa’s site, the consumers would not be confused as to the source. Defendants offer no evidence, however, to support such a finding. Moreover, even if such evidence had been offered, defendants’ argument would be unavailing. As noted, under the “initial interest confusion” theory of trademark liability, “source confusion” need not occur; rather, in the internet context, the wrongful act is the defendant’s use of the plaintiff’s mark to “divert” consumers to a website that “consumers know” is not Storus’ website. See Brookfield , 174 F. 3d at 1062. n6

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n6 Defendants rely on the concurring opinion in Playboy Enterprises, Inc. v. Netscape Communications Corp. , 354 F. 3d 1020 [69 USPQ2d 1417 ] (9th Cir. 2004), in which Judge Berzon expressed concern that Brookfield was “wrongly decided” and “may one day, if not now, need to reconsidered en banc.” See id. at 1035. Nevertheless, this Court is bound by Brookfield . Moreover, Judge Berzon’s concern pertained to application of the holding in Brookfield to a defendant who, having used the plaintiff’s mark as a keyword, causes consumers to view an internet ad “clearly labeled” as an ad for the defendant. See id. This concern is inapplicable to the instant matter; Aroa’s advertisement is not “clearly labeled” as an ad for Aroa, given that the largest words in the advertisement consist of a mark identical to Storus’ mark.

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Accordingly, the Court finds no triable issue of fact exists with respect to any of the three “factors of the internet trilogy,” each of which weighs in favor of Storus. See Perfumebay.com , 506 F. 3d at 1174. Consequently, the burden shifts to defendants to offer evidence to support a finding that the remaining factors “weigh strongly against a likelihood of confusion.” See id. at 1174-75. [*1037]

In that regard, defendants offer no evidence to show a lack of actual initial interest confusion. The only evidence relevant to this factor is offered by Storus, specifically, undisputed evidence that during the period from November 13, 2006 to October 12, 2007, when Aroa’s ad appeared thousands of times in response to searches for “smart money clip,” such ad generated 1,374 “clicks.” ( See Choi Decl. Para. 5, Ex. B at 4-5; Andara Decl. Ex. E. at STOR00673-74.) In other words, on 1,374 occasions, consumers who were searching for a website by using Storus’ mark were, in fact, “diverted” to an Aroa website selling money clips that compete with Storus’ money clips. Such diversion constitutes the “initial interest confusion” prohibited by the Lanham Act. See Brookfield , 174 F. 3d at 1062, 1065.

Defendants offer no evidence as to their intent in selecting Storus’ mark as a keyword in Google’s AdWords program. Again, the only evidence relevant to such factor is offered by Storus, specifically, evidence that Aroa, before it began using “smart money clip” as a keyword in Google’s AdWords program, had actual knowledge that Storus used the mark “Smart Money Clip” to market money clips. ( See Kaminski Decl. Para. 7.)

With respect to the strength of the Smart Money Clip mark, defendants rely on their argument that Storus’ mark is descriptive and, consequently, weak. “Whether the mark is weak or not is of little importance,” however, “where the conflicting mark is identical and the goods are closely related,” see Brookfield , 174 F. 3d at 1059 (internal quotation and citation omitted), which is precisely the situation presented herein.

Defendants concede the “degree of consumer care” favors Storus, because “consumer care for inexpensive products is expected to be quite low.” ( See Defs.’ Opp. at 14:25-27.) The remaining factor, “likelihood of expansion,” is, in the instant case, “irrelevant” because the goods sold by the plaintiff and the defendant are “related.” See Playboy Enterprises , 354 F. 3d at 1029.

In sum, there is no triable issue with respect to any of the three “factors of the internet trilogy,” and defendants have failed, on behalf of Aroa, to make any showing, let alone the requisite “strong” showing, that the remaining factors weigh against a finding of a likelihood of confusion. Under the circumstances, the Court finds Storus has shown no material issue exists as to a likelihood of confusion by reason of Aroa’s having used Google’s AdWords program in the above-described manner. n7

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n7 The Court makes the same finding irrespective of whether the Court employs a burden-shifting approach as set forth in Interstellar Starship and Perfumebay.com , or considers each factor without burden-shifting. See , e.g. , Playboy Enterprises , 354 F. 3d at 1026-29. As discussed above, the only evidence offered with respect to five of the Sleekcraft factors is undisputed and each such factor weighs in favor of Storus; defendants concede a sixth factor weighs in favor of Storus; a seventh factor is of little importance; and the eighth factor is irrelevant.

At his deposition, Skymall’s Chief Financial Officer, Dick Larson (“Larson”), was asked whether, if a consumer used Skymall’s search engine to search for the term “Smart Money Clip,” a webpage showing one of Aroa’s money clips would come up; Larson responded, “I would expect [Aroa’s] product to come up.” ( See id. Ex. M at 94:10-12.) At her deposition, Skymall’s Customer Service Manager, Jeanette Watte (“Watte”), was asked, “[I]f you typed in Smart Money Clip,’ [*1038] do you believe that based on that search engine it would bring you [Aroa’s] product”; Watte responded, “Today it would, probably.” ( See id. Ex. N at 19:23-20:2.) n8

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n8 Watte’s deposition was taken September 19, 2007. She also testified that “the search functionality [of Skymall’s search engine] has been enhanced so that [customer service employees] can locate products easier.” ( See id. Ex. N at 20:4-8.)

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c. Analysis

With respect to Skymall, Storus’ theory of liability is that if a consumer enters the phrase “smart money clip” in Skymall’s search engine, the consumer would be directed to a page, in what is essentially an electronic catalog, on which Skymall offers for sale an Aroa money clip and on which the words “smart money clip” appear in conjunction with such offer. Put another way, its is Storus’ theory that when a consumer asks if Skymall offers a “Smart Money Clip,” Skymall answers, “yes,” and directs the consumer to a page offering an Aroa money clip. Relying on a claim of initial interest confusion under Brookfield and the above-described deposition testimony offered by Larson and Watte, Storus argues such theory can be established as a matter of law. The Court disagrees.

Go to Headnotes [**3R] Although Skymall conceded having, on July 14, 2005, a webpage containing the phrase “smart money clip” in a description of an Aroa money clip, Skymall has not conceded that, at that time, a consumer who entered “smart money clip” in the Skymall search engine would have been directed to that particular page. All that Skymall conceded, in the above-referenced deposition testimony, is that at present or, at best, at some unspecified time, if a consumer were to enter “smart money clip” in Skymall’s search engine, the consumer would likely be directed to a webpage depicting an Aroa product. n9 Critically, Storus points to no concession by Skymall that such a consumer would be directed to a page containing the phrase “smart money clip,” let alone to a page identical to that found on Skymall’s website on July 14, 2005. Indeed, it appears, from the limited evidence submitted, that a page offering an Aroa money clip will appear as a search result solely because the consumer searches using the phrase “money clip,” irrespective of whether the consumer adds the word “smart” to the search term and irrespective of whether the page contains the word “smart.” ( See id. Ex. M at 93:18-94:9.) Put another way, although the evidence is undisputed that, in July 2005, Skymall’s catalog contained a webpage that included the words “smart money clip,” the record reflects no evidence, or at best a triable issue, with respect to whether, at that time, Skymall had a search engine that would direct consumers to that page if they were to enter the term “smart money clip.” Conversely, although there is evidence that, at the present time, Skymall’s search engine would direct such consumers to a page advertising an Aroa money clip, there is no evidence that, at this time, any such page contains the words “smart money clip.” In sum, the inquiry of Larson and Watte at their respective depositions is too imprecise to support, as a matter of law, the inference Storus seeks to draw.

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n9 A defendant can only be liable for trademark infringement if it engages in an unconsented “use” of another’s mark. See 15 U.S.C. Section 1114(1). Such “use,” in a claim of the type alleged against Skymall, could be proved, e.g., by evidence showing the defendant directs a consumer who searches for “smart money clip” to a webpage on which it offers a competing money clip, and where that page contains the phrase “smart money clip,” either expressly stated thereon or in a metatag. Here, Storus offers no evidence as to how Skymall’s search engine works; specifically, Storus offers no evidence, or even argues, that Skymall’s search engine directs a searching consumer to its pages based on metatags found on those pages, or by some similar mechanism not visible to the consumer by which Skymall itself makes “use” of the mark “smart money clip.” Consequently, based on the record before the Court, Storus can only establish the requisite “use” if it proves Skymall’s search engine directs a consumer searching for “smart money clip” to a page in its catalog that expressly contains the phrase “smart money clip.”

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Accordingly, the Court finds Storus has failed to show no material issue of fact exists as to a likelihood of initial interest confusion based on Skymall’s search engine.

CONCLUSION

For the reasons stated above, Storus’ motion for partial summary judgment of trademark infringement is hereby GRANTED in part and DENIED in part, as follows:

The motion is GRANTED and Storus shall have judgment in its favor as against Aroa on the issue of trademark infringement, specifically, that Aroa’s use of Storus’ mark in connection with Google AdWords is infringing.

1. In the 1980’s in New York, Domenico Santorelli, who is not a party to these proceedings, began selling stainless steel cookware under the brand name Perma-Life®.

2. In 1986, Ki Won (“Jean”) Shim entered into a 50-50 business partnership with Mr. Santorelli whereby they would jointly own and operate the Perma-Life cookware business, including specifically the Perma-Life trademark.

3. In 2002, Ms. Shim purchased from Domenico Santorelli the rights to the Perma-Life trademark and to U.S. Trademark Registration No. 2,029,777 (“the ‘777 Registration”) for the goods of, inter alia, metal cookware, and the goodwill associated with that mark.

4. Since purchasing the rights to the Perma-Life [*2] trademark and associated goodwill of the business from Mr. Santorelli, together Ms. Shim and Plaintiff Partners for Health & Home, L.P. (“Partners”), of which Ms. Shim is the President, have continuously sold stainless steel cookware under the Perma-Life trademark.

6. In reviewing those incoming files, Mr. Voelzke noticed that Mr. Supnick had failed to renew the ‘777 registration and that the time period for filing a late renewal had expired. Mr. Voelzke filed a new trademark application to re-register the Perma-Life trademark.

7. The time period from the time that the PTO officially declared the ‘777 registration lapsed on June 6, 2008, until the day that attorney Voelzke filed the new application on June 8, 2008, was one day.

8. The application filed by attorney Voelzke registered as Registration No. 3,564,113 (“the ‘113 Registration”) on January 20, 2009 for the mark Perma-Life.

9. The ‘113 Registration is a valid and subsisting federal trademark registration for the mark Perma-Life.

10. The period during which [*3] there was no federal trademark registration for Perma-Life owned in whole or in part by Plaintiff, its principal Jean Shim, or a predecessor company in which Jean Shim was part owner, was less than 8 months (from June 6, 2008 until January 20, 2009).

11. In 2009, Ms. Shim assigned both of the registrations, including the goodwill associated with the mark and the right to sue for past infringements, to Plaintiff Partners for Health and Home, L.P. (“Partners”), of which she is the President.

12. At no time from 1986 until the present did Ms. Shim or her companies ever stop selling Perma-Life cookware, whether through her partnership with Domenico Santorelli, through her company Perma-Life Cookware, or through her company Partners.

14. Defendant Seung Wee Yang made all of the managerial decisions for STP.

15. Defendant Seung Wee Yang made all of STP’s marketing and advertising decisions.

16. For several years, Defendant Yang imported “health mattresses” and water purifiers from Korea.

17. From about October 2005 to about April 2007, Plaintiff purchased mattresses and water purifiers from Mr. Yang, [*4] and used its distribution network to sell those products to end customers in America.

18. In January 2008, Mr. Yang began selling stainless steel cookware; he called his new cookware Pearl Life.

19. Defendants sold approximately $400,000 worth of Pearl Life cookware.

20. Defendants’ purchase price for that cookware from the manufacturer was approximately $223,708.

21. Occasionally, Defendants advertised their cookware as being “PEARL-LIFE” (with a hyphen).

22. A significant target market for both Plaintiff’s cookware and Defendants’ cookware is the Korean American community in the Los Angeles area.

23. In their discovery answers, Defendants claimed to be unable to remember any way in which they had ever used Plaintiff’s Perma-Life trademark within their own advertising to sell their competing Pearl Life cookware.

24. In 2006, Mr. Yang registered the domain name www.permalife.co.kr.

25. Mr. Yang placed, or caused to be placed, the metatag “permalife” on the website located at www.permalife.co.kr.

26. Mr. Yang placed the www.permalife.co.kr domain for sale by stating on that website that the domain was “For Sale.”

27. On July 9, 2008, Mr. Yang registered a second Korean domain, www.perma-life.co.kr.

28. [*5] Mr. Yang admitted in deposition that in early 2007 his relationship with Ms. Shim fell apart; then more than a year later, he registered the domain www.perma-life.co.kr and linked it to his www.pearllife.com website (framed that website) from which he advertised his Pearl Life cookware; then later he put the www.perma-life.co.kr domain up for sale, all without ever telling Ms. Shim that he had done those things.

29. Mr. Yang repeatedly denied in this litigation that Exhibit 4 to the Complaint, which showed the domain www.perma-life.co.kr being used to promote Mr. Yang’s own Pearl Life cookware, was an accurate representation of what the website at www.perma-life.co.kr looked like.

30. Mr. Yang admitted in deposition however, that Exhibit 3 to the deposition (which is identical to Exhibit 4 to the Complaint) was an accurate representation of what www.perma-life.co.kr looked like.

31. Mr. Yang admitted in deposition that he had caused the domain www.perma-life.co.kr to be “linked” or “forwarded” to his “home page” at www.pearllife.com.

32. Contrary to his deposition testimony, Mr. Yang did not actually stop linking (framing) www.perma-life.co.kr to his own Pearl Life website until at least [*6] October 2009.

33. Mr. Yang repeatedly denied in this litigation that he had caused the metatags “perma-life” and “perma life” to be placed on the website at www.perma-life.co.kr.

34. That source code for the website www.perma-life.co.kr contained the terms “perma life” and “permalife” as metatags.

35. Mr. Yang instructed his website designer, Steven Kim, to place “perma-life” as a metatag on that website.

36. Mr. Yang posted videos on the Internet promoting his Pearl Life cookware to which he applied Plaintiff’s Perma-Life trademark as visible tags (indexing tags); he posted such videos on the video sharing sites YouTube (www.youtube.com), and Tag Story (www.tagstory.com), and on his “blog” at Daum (www.daum.net).

37. Mr. Yang’s intent in applying Plaintiff’s Perma-Life trademark as indexing tags for videos was to divert consumers who were looking for Plaintiff’s Perma-Life cookware on the Internet to his www.pearllife.com website from which he sold his Pearl Life cookware.

38. In their Answers, Defendants denied having purchased “PERMA-LIFE” as a search engine advertising keyword.

39. Mr. Yang, however, did in fact purchase from Google, Inc. the term “permalife” as an Internet search engine [*7] advertising keyword.

40. In sum, Defendants used Plaintiff’s Perma-Life trademark in the following ways: (1) as a domain name through which they framed their www.pearllife.com website at which they promoted their competing Pearl Life cookware; (2) as metatags on their websites at which they promoted their Pearl Life cookware; (3) as Google Internet search engine advertising keywords to direct consumers to their www.pearllife.com website; and (4) as visible video tags which act as indexes on their videos which they posted at various Internet video sharing websites including at least YouTube (www.youtube.com) and Tag Story (www.tagstory.com), and at a “blog” site at Daum (www.daum.net).

41. Defendants posted on their www.pearllife.com website a large photograph of Defendant Yang shaking hands with the original founder of Perma-Life cookware, Domenico Santorelli, and text below the photograph stating that Defendants entered into an “agreement” with Mr. Santorelli, falsely implying a connection between Defendants and Plaintiff’s Perma-Life cookware.

42. Defendants never sold any Perma-Life cookware.

43. The text accompanying the photograph states that the company [i.e., the company formerly [*8] selling Perma-Life] has changed names to “New Life” and is now being operated by Mr. Santorelli’s daughters.

44. Ms. Shim sold Perma-Life cookware continuously from 1986 to the present.

45. A significant number of consumers have actually been confused between Pearl Life and Perma-Life, and/or between Plaintiff and Defendants.

46. Defendants did not seek advice of counsel before using Plaintiff’s Perma-Life trademark to promote their own Pearl Life cookware, nor did they seek advice of counsel on that issue even after this action was initiated against them.

47. Defendants did not respond to numerous cease-and-desist demands from Plaintiff that Defendants stop using Plaintiff’s Perma-Life trademark in their advertising.

48. Any Conclusion of Law hereafter determined to be an undisputed fact is hereby made an undisputed fact.

CONCLUSIONS OF LAW

1. Any finding of fact which is hereafter determined to be a conclusion of law is hereby made a conclusion of law.

2. This Court has jurisdiction over the subject matter of this action under 28 U.S.C. §§ 1331 and 1338 and 15 U.S.C. § 1121.

3. HN1Go to the description of this Headnote.Summary judgment or partial summary judgment is appropriate when there is no genuine issue as to any material fact [*9] and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).

4. HN2Go to the description of this Headnote.Summary judgment may be granted when “no reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). HN3Go to the description of this Headnote.The court must afford all reasonable inferences and construe the evidence in the light most favorable to the non-moving party. See id. at 255. HN4Go to the description of this Headnote.To defeat summary judgment, the evidence as properly construed must be sufficient for a reasonable jury to find for the nonmoving party; a mere scintilla of evidence will not suffice. Id. at 252.

6. [*10] HN6Go to the description of this Headnote.This is particularly true when a single individual is the corporation’s sole shareholder, sole officer, and sole manager, and performs the infringing acts himself; that person will be individually liable for the intellectual property infringements committed by the corporation. Playboy Enterprises Inc. v. Chen, 45 U.S.P.Q.2d 1400, 1412 (C.D. Cal. 1997). Such personal liability does not depend on piercing the corporate veil. Id.

7. Defendant Yang as sole shareholder, sole officer, sole manager, the sole individual responsible for advertising for Defendant S T P America, Inc., and the person who personally committed the acts relevant to this action, is personally liable for all of those acts.

8. Plaintiff’s trademark was federally registered from September 2, 1997 to June 6, 2008 as U.S. Trademark Reg. No. 2,092,777, and was federally registered as U.S. Trademark Reg. No. 3,564,113 from January 20, 2009 to the present.

9. At all relevant times, Plaintiff also had common law trademark rights and rights under the Lanham Act § 43(a), through continuous use in commerce, of the Perma-Life mark.

10. HN7Go to the description of this Headnote.Under 15 U.S.C. § 1125(d)(1)(A), the Anti-Cybersquatting Consumer Protection Act (ACPA), a person [*11] is civilly liable for cyberpiracy (aka cybersquatting) to a trademark owner if that person (i) “has a bad faith intent to profit from a mark . . . and (ii) registers, traffics in, or uses a domain name that . . . in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to that mark.” Id. The statute lists nine non-exclusive factors to be considered in deciding whether the domain registrant acted in “bad faith.” Those factors are:

HN8Go to the description of this Headnote.(I) the trademark or other intellectual property rights of the person, if any, in the domain name;

(II) the extent to which the domain name consists of the legal name of the person or a name that is otherwise commonly used to identify that person;

(III) the person’s prior use, if any, of the domain name in connection with the bona fide offering of any goods or services;

(IV) the person’s bona fide noncommercial or fair use of the mark in a site accessible under the domain name;

(V) the person’s intent to divert consumers from the mark owner’s online location to a site accessible under the domain name that could harm the goodwill represented by the mark, either for commercial gain or with the intent [*12] to tarnish or disparage the mark, by creating a likelihood of confusion as to the source, sponsorship, affiliation, or endorsement of the site;

(VI) the person’s offer to transfer, sell, or otherwise assign the domain name to the mark owner or any third party for financial gain without having used, or having an intent to use, the domain name in the bona fide offering of any goods or services, or the person’s prior conduct indicating a pattern of such conduct;

(VII) the person’s provision of material and misleading false contact information when applying for the registration of the domain name, the person’s intentional failure to maintain accurate contact information, or the person’s prior conduct indicating a pattern of such conduct;

(VIII) the person’s registration or acquisition of multiple domain names which the person knows are identical or confusingly similar to marks of others that are distinctive at the time of registration of such domain names, or dilutive of famous marks of others that are famous at the time of registration of such domain names, without regard to the goods or services of the parties; and

(IX) the extent to which the mark incorporated in the person’s domain name [*13] registration is or is not distinctive and famous within the meaning of subsection (c).

15 U.S.C. § 1125(d)(1)(B).

11. HN9Go to the description of this Headnote.It does not matter whether a trademark is a “dot com” or has a “dot country code” at the end, in a case such as this in which the defendant resides in the United States, the trademark owner resides in the United States, and the domain is accessed by United States customers. See Playboy Enterprises, Inc. v. Chuckleberry Pub., Inc., 939 F. Supp. 1032 (S.D.N.Y. 1996) (holding defendants in contempt of court for registering and operating Italian domain www.playmen.it accessible by U.S. customers in violation of ACPA, where defendants had previously been adjudged to be infringers of the PLAYMEN trademark and had been ordered to cease infringing that mark).

12. Plaintiff is entitled to summary adjudication of cyberpiracy against Defendants with respect to Defendants’ registration and attempts to sell the domain www.permalife.co.kr.

13. Plaintiff is entitled to summary adjudication of cyberpiracy against Defendants with respect to Defendants’ registration and use of the domain www.perma-life.co.kr to promote and sell Defendants’ Pearl Life cookware.

14. HN10Go to the description of this Headnote.It is an infringement of [*14] a trademark to use in commerce any sufficiently similar word or device such that consumers are likely to be deceived regarding the source, affiliation, or sponsorship of the goods being offered for sale. See 15 U.S.C. § 1114(1) (infringement of a registered trademark) and 15 U.S.C. § 1125(a) (Lanham Act § 43(a), false designation and false descriptions, regardless of whether a registered mark is involved).

15. HN11Go to the description of this Headnote.The core element of trademark infringement is whether customers are likely to be confused about the course or sponsorship of the products.

(6) the degree of care customers are likely to exercise in purchasing the goods;

(7) the defendant’s intent in selecting the mark; and

….

18. HN14Go to the description of this Headnote.In the Internet context, the three most important Sleekcraft factors in evaluating a likelihood of confusion are:

(1) the similarity of the marks,

(2) the relatedness of the goods and services, and

(3) the parties’ simultaneous use of the Web as a marketing channel.

Perfumebay.com, 506 F.3d at 1173.

19. HN15Go to the description of this Headnote.When these factors suggest that confusion is likely, the other factors must weigh strongly against a likelihood of confusion to avoid the finding of infringement. On the other hand, if these three factors do not clearly indicate a likelihood of consumer confusion, then a district court can conclude the infringement analysis only by balancing all the Sleekcraft factors within the unique context of each case. Perfumebay.com, 506 F.3d at 1173-74 (citations and internal quotations omitted).

22. “[E]vidence that the use of the two marks has already led to confusion is persuasive proof that future confusion is likely.” GoTo.com. Inc. v. Walt Disney Co., 202 F.3d 1199, 1208 (9th Cir. 2000) (quoting Sleekcraft, supra).

23. HN18Go to the description of this Headnote.The person using another’s trademark in commerce bears the burden of demonstrating that the use of the trademark is authorized by law, i.e., is a fair use. See 15 U.S.C. § 1115(b).

24. HN19Go to the description of this Headnote.As a general rule, using another party’s trademark on an Internet website without authorization, and without legal justification, constitutes trademark infringement per se. See, e.g., Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1238, 77 U.S.P.Q.2d 1968, 1972 (10th Cir. 2006).

25. HN20Go to the description of this Headnote.”Initial interest confusion” occurs when a user is initially attracted to a defendant’s website or products based on an initial impression [*17] that the defendant sells the trademarked product, even if that user eventually realizes before purchasing that the products being offered are not the trademarked goods. Using another’s trademark or a similar trademark in a way that causes initial interest confusion is one type of trademark infringement, and is actionable. Australian Gold, supra, 436 F.2d at 1238-39, 1240.

29. HN24Go to the description of this Headnote.Because bad faith intent to profit from another’s trademark is a necessary element of a claim for cyberpiracy under the ACPA, using a domain that incorporates another’s trademark in a way that is also likely to create consumer confusion also constitutes willful trademark infringement.

30. Defendants have infringed Plaintiff’s Perma-Life trademark by each of the following acts, taken either individually or as a whole:

a. Registering the domain www.perma-life.co.kr and using it to promote their competing Pearl Life cookware;

b. Applying the metatags “perma life” and “permalife” to the website at www.perma-life.co.kr through which they sold their competing Pearl Life cookware;

c. Applying the term “permalife” as visible video tags (indexes) on videos promoting Pearl Life cookware which they posted on the Internet at video sharing websites YouTube (www.youtube.com) and Tag Story (www.tagstory.com), and on the “blog” site Daum (www.daum.net).

d. Purchasing the term “permalife” as an Internet search engine advertising keyword to direct Internet users to their website at www.pearllife.com at which they advertised their Pearl Life cookware.

31. HN25Go to the description of this Headnote.Failure to seek a legal opinion of counsel as to infringement, especially after receiving a cease-and-desist letter, is probative evidence of an infringer’s willfulness. Pfizer Inc. v. Sachs, 652 F. Supp. 2d 512, 523, 92 U.S.P.Q.2d 1835 (S.D.N.Y. 2009).

32. The marks “Pearl Life” and “PEARL-LIFE,” when applied to the goods of stainless steel cookware, are confusingly similar to PERMA-LIFE for stainless steel cookware.

34. Defendants are liable for violating the Lanham Act § 43(a), for the same reasons as they are liable for trademark infringement.

35. Defendants are liable for violating the Lanham Act § 43(a) for the additional reasons that they:

(a) falsely told consumers that PEARL LIFE cookware is the same cookware as PERMA-LIFE cookware;

(b) falsely told consumers that their company is the same company as Plaintiff.

36. HN27Go to the description of this Headnote.Trademark infringement under 15 U.S.C. § 1114(1) also constitutes trademark counterfeiting when the infringer uses a “counterfeit mark,” which is defined as “a counterfeit of a mark that is registered on the principal register of the United States Patent and Trademark Office for such goods or services sold, offered for sale, or distributed and that is in use . . . .” 15 U.S.C. § 1116(d)(1)(B)(i).

37. Defendants’ use of Plaintiff’s trademark in the various [*21] ways listed above constitutes trademark counterfeiting. See Aztar Corp. v. MGM Casino, 59 U.S.P.Q.2d 1460, 1463 (E.D. Va. 2001) (finding defendants liable for both cyberpiracy and trademark counterfeiting, where defendant registered a domain name that incorporated plaintiff’s trademark exactly, and used that trademark in visible text on the website as the name of that website).

Through this action, Plaintiff Daniel Jurin (“Plaintiff”) alleges several violations of state and federal law arising out of the use of its trademarked name “Styrotrim” by Defendant Google, Inc. Click for Enhanced Coverage Linking Searches(“Defendant”). Presently before the Court is Defendant’s Motion to Dismiss Plaintiff’s Second and Sixth Causes of Action for failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) 1. As set forth below, Defendant’s Motion will be granted in part and denied in part.

FOOTNOTES

1 All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure unless otherwise noted.

BACKGROUND2

FOOTNOTES

2 The factual assertions in this section are based on the allegations in Plaintiff’s Complaint unless otherwise specified.

Defendant is a highly recognized corporation most known for its widely used search engine website. As part of operating its search engine, Defendant “indexes” websites, and collects information regarding their contents so that it, in turn, can store the information for use in formulas which respond to search queries. Generally, when a user enters a query into Defendant’s website, the search engine will process relevant websites based on several information factors and then return results to the user.

Web designers routinely use this process to influence their ranking on Defendant’s results page. Prior to building a site, web designers will often conduct a keyword search using various available keyword tools in order to determine what terms or phrases internet users are most commonly searching for. A web designer will then build its site around more popular search terms in order to ensure a higher rank on a search engine results page.

Additionally, those with more capital may advertise their websites by “bidding” on keywords. A web designer can construct an ad using popular keywords, and then pay a search engine provider a fee to bid on those keywords [**3] in an effort to appear on a search engine results page as a “Sponsored Link” whenever users enter those keywords in their search queries. The higher a web designer bids, the higher the “Sponsored Link” placement when those bid-upon keywords are searched for. “Sponsored Links” appear either at the top or along the side of a search engine results page. As part of its business, Defendant allows advertisers to bid on keywords in a program called “Google AdWords” (“AdWords”) and through this program, encourages advertisers to bid on additional relevant keywords using a “keyword suggestion tool.”

B. Plaintiff’s Suit

Plaintiff owns a company which markets and sells its trademarked “Styrotrim” building material to homeowners, contractors, and those in the construction and remodeling industries. Plaintiff filed suit in this case based on Plaintiff’s competitors’ alleged unauthorized use of its trademarked name as a generic keyword, with the alleged encouragement of Defendant’s keyword suggestion tool in its AdWords program.

Defendant’s keyword suggestion tool picked up the trademarked name “Styrotrim” as a commonly searched term and thereafter suggested it as a keyword to bidders in AdWords. Defendant’s [**4] AdWords program has a policy recognizing the importance of trademarks and states in its terms and conditions that it prohibits intellectual property infringement by advertisers. In this policy, Defendant states it will investigate matters raised by trademark owners. Additionally, the terms and conditions of this policy lay out precisely the scope of investigation it will conduct based on the region in which the trademark holder resides. In the United States, the scope of the investigation will only cover trademarks appearing in the text of advertisements, and not bid-upon keywords.

By both allowing and encouraging Plaintiff’s competitors to bid on the keyword “Styrotrim,” Defendant caused their advertisements to appear as “Sponsored Links” on a results page whenever a user searches for “Styrotrim.” And, where Plaintiff’s competitors have placed a higher bid on its own trademark, they will appear at a higher rank in the list of “Sponsored Links.”

[*1069] Plaintiff now alleges that through AdWords, Defendant misappropriated Plaintiff’s trademark name for its own profit and breached its contract with Plaintiff by failing to investigate trademark infringement as required by the Adwords policy. Plaintiff [**5] alleges Defendant generates advertising revenue from Plaintiff’s competitors, and facilitates their infringement of Plaintiff’s trademark. Plaintiff alleges that Defendant’s actions have caused a dilution of its consumer base by often causing competitors to appear in a position higher than Plaintiff on a results page where they have placed a higher bid on its trademark name. Plaintiff argues this arrangement confuses consumers into believing that a competitor’s product is preferable to Plaintiff’s and is a form of “bait and switch” advertising purposefully using Plaintiff’s trademarked name to misdirect “Styrotrim” consumers away from Plaintiff’s site. Additionally, Plaintiff alleges that consumers may become confused as to whether its competitors are associated with Plaintiff’s product.

STANDARD

HN1Go to the description of this Headnote.On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief” in order to [**6] “give the defendant fair notice of what the…claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964, 167 L. Ed. 2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the “grounds” of his “entitlement to relief” requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Id. at 1964-65 (internal citations and quotations omitted). Factual allegations must be enough to raise a right to relief above the speculative level. Id. at 1965 (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-36 (3d ed. 2004) (“The pleading must contain something more…than…a statement of facts that merely creates a suspicion [of] a legally cognizable right of action”)).

HN2Go to the description of this Headnote.”Rule 8(a)(2)…requires a ‘showing,’ rather than a blanket assertion of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only ‘fair notice’ of the nature of the claim, but also [**7] ‘grounds’ on which the claim rests.” Twombly, 550 U.S. 544 n.3, 127 S. Ct. 1955, 167 L. Ed. 2d 929. A pleading must contain “only enough facts to state a claim to relief that is plausible on its face.” Id. at 570. If the “plaintiffs…have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.” Id. Nevertheless, “[a] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and ‘that a recovery is very remote and unlikely.'” Id. at 556.

HN3Go to the description of this Headnote.A court granting a motion to dismiss a complaint must then decide whether to grant leave to amend. A court should “freely give” leave to amend when there is no “undue delay, bad faith[,] dilatory motive on the part of the movant,…undue prejudice to the opposing party by virtue of…the amendment, [or] futility of the amendment….” Fed. R. Civ. P. 15(a); [*1070] Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962). Generally, leave to amend is denied only when it is clear the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).

ANALYSIS

A. Lanham Act

Plaintiff’s Second Amended Complaint alleges that Defendant’s use of the [**8] term “Styrotrim” in its keyword suggestion tool, and its publishing of “Sponsored Links” in response to an online search for “Styrotrim,” constitutes false designation of origin in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Specifically, Plaintiff alleges that “advertising competitors of ‘Styrotrim’ in the building materials industry are falsely misled that the keyword ‘Styrotrim’ is a generic word and not an abstract trademarked term.” According to Plaintiff, its competitors are in this way induced to infringe on Plaintiff’s trademark.

Plaintiff further argues that end users have a reasonable expectation that the websites provided to them on Defendant’s search results page are associated with Plaintiff. Plaintiff claims that said consumers may become “confused, mistaken, misled and/or deceived” that the “Sponsored Links” are affiliated with Plaintiff or are themselves producers of “Styrotrim.”

HN4Go to the description of this Headnote.The Lanham Act was intended to make “actionable the deceptive and misleading use of marks,” and “to protect persons engaged in…commerce against unfair competition.” 15 U.S.C. § 1127. Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125(a), creates a federal remedy [**9] against a person who “used in commerce a ‘false designation of origin, or any false description or representation’ in connection with ‘any goods or services.'” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 29, 123 S. Ct. 2041, 156 L. Ed. 2d 18 (2003).

“(1) any person who…uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designations of origin, false or misleading description of fact, or false or misleading representation of fact, which…

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.”

HN6Go to the description of this Headnote.To bring a false association claim, § 1125(a)(1)(A) requires the holder of a valid trademark to show that a defendant’s illicit use of its mark in commerce has caused consumers to become confused, mistaken, misled and/or deceived as to the producer of the goods offered for sale. [*1071] Waits v. Frito-Lay, Inc., 978 F.2d 1093, 1109-10 (9th Cir. 1992). Unlike the false advertising prong of § 1125(a), a false association claim does not require parties to be direct competitors. Id.; see also Jack Russell Terrier Network v. Am. Kennel Club, Inc., 407 F.3d 1027, 1036-37 (9th Cir. 2005).

Plaintiff’s Second Amended Complaint alleges that Defendant’s use of AdWords program and its keyword suggestion tool has caused a false association between Plaintiff’s “Styrotrim” building materials and those of its competitors. Plaintiff alleges that internet users who enter the keyword “Styrotrim” on Defendant’s search engine, and view the websites for Plaintiff’s competitors [**11] in “Sponsored Links,” may become confused as to which company is the producer of “Styrotrim,” or whether competitors are associated with “Styrotrim.”

Defendant does not dispute that Plaintiff has standing to bring a claim for false association. Rather, Defendant’s sole contention as to this prong is that § 1125(a)(1)(A) should be construed narrowly such that the defendant must be the producer of the goods that the plaintiff has alleged caused confusion with its own goods. Because Defendant is a search engine, and not a producer of building materials, Defendant argues that Plaintiff’s claim is not properly brought against it.

Defendant cites to two cases to support this contention: Facenda v. N.F.L. Films, Inc., 542 F.3d 1007, 1014 (3d Cir. 2008) and Cairns v. Franklin Mint Co., 24 F. Supp. 2d 1013, 1032 (C.D. Cal. 1998). However, neither of these cases address the issue of whether the statute requires defendant to be the producer of the goods at issue.

The former case merely states the issue as it applies to the particular facts of that case, which did involve a direct competition between the plaintiff and defendant. The latter case is concerned with the issue of who may be a plaintiff, [**12] and not who may be a defendant. In fact, this same case goes on to state that HN7Go to the description of this Headnote.the statutory language, “another person” was purposefully selected with the intent that it be applied broadly, and that these words indicate Congressional intent to make § 1125(a)(1)(A) an expansive provision. Cairns, 24 F. Supp. 2d at 1032-33.

Cairns was right to point out that the language of § 1125(a)(1)(A) is general in nature. In referring to parties who may be involved, the statute uses indefinite language such as “any person” and “another person.” Further, the legislative history for the 1988 amendments 3 to § 43(a) of the Lanham Act contains a report by the International Trademark Association confirming legislative intent to construe the provision broadly. This report explains in detail the underlying rationale for each recommended amendment. In the section of the report recommending changes to § 43(a) , the report duly noted the fact that the original 1946 version of § § 43(a) was very narrow in scope, but was subsequently interpreted quite broadly by judges over ensuing years. The report goes on to state that it “believes it advisable to conform the language of § 43(a) to the expanded scope of protections [**13] applied by the courts.”

FOOTNOTES

3 The 1988 amendments first split § 43(a) into the two separate prongs for false association and false advertising. The original 1946 version of § 43(a) had no subsections. Lanham Act of 1946, Pub. L. No. 489, § 1125(a), 60 Stat. 427, 441 (1946) (amended 1988).

The report then notes that it wished to “make it clear that we encourage the courts to give our amended section the same innovative interpretation they have given the original.” “The United States Trademark Association Trademark Review [*1072] Commission Report and Recommendations to USTA President and Board of Directors,” 77 T.M. Rep. 375, 426-27 (1987). See also 133 Cong. Rec. 32812 (1987) (statement of Sen. DeConcini) (“The bill I am introducing today is based on the Commission’s report and recommendations”). Given the very broad and general language of § 1125(a) and the legislative history encouraging courts to interpret innovatively, Defendant has very little, if any, support for a narrow construction of the statute.

Finally, if this Court were to superimpose the words “plaintiff” and “defendant” over the general language of the statute, as Defendant advocates, it would undermine HN8Go to the description of this Headnote.an abundance of case law explicitly [**14] holding that subsection (A) does not require defendant to be a “direct competitor” of plaintiff. See e.g. Jack Russell Terrier Network 407 F.3d at 1036-37; Waits, 978 F.2d at 1109-10. A competitor in the sale of goods is defined as persons endeavoring to furnish the same merchandise. Kournikova, 278 F. Supp. 2d at 1117. With very few exceptions in suits over false designation of goods, if a defendant must be the producer of the goods that are confused with plaintiff’s goods, it must necessarily be a direct competitor of plaintiff. Neither case law nor congressional intent provides support for the dramatic change in statutory interpretation espoused by Defendant.

Because of both long-standing tradition in the case law, as well as clearly stated legislative intent in interpreting § 43(a) of the Lanham Act broadly, this Court declines to require Defendant to be the producer of goods in order to continue a claim for false association. Because a narrow construction of the statute was Defendant’s only argument against Plaintiff’s claim for false designation of origin, the claim stands. 4 Defendant’s Motion to Dismiss Plaintiff’s second claim for false designation of origin is denied.

FOOTNOTES

4 To the [**15] extent this conclusion runs counter to the Court’s previous orders (ECF Nos. 19, 39) on Defendant’s prior Motions to Dismiss, the Court has now concluded that the analysis set forth herein is the correct one. Any earlier determination to the contrary is hereby revised in accordance with the provisions of Federal Rule of Civil Procedure 54(b).

2. False Advertising

Plaintiff also alleges that Defendant’s AdWords program constitutes false advertising. HN9Go to the description of this Headnote.False advertising claims arising under 15 U.S.C. § 1125(a)(1)(B) must show that the holder of a valid trademark has sustained a competitive injury from a defendant’s illicit use of the trademark in advertising that misrepresents plaintiff’s goods. Jack Russell Terrier Network, 407 F.3d at 1037. A ‘competitive injury’ occurs when a direct competitor, defendant, harms the plaintiff’s ability to compete with it in their shared marketplace. Id.

Plaintiff contends that it did sustain a competitive injury from Defendant’s misappropriation of its trademark because the two companies are competitors for the word “Styrotrim.” Because Plaintiff has alleged both false association and false advertising in its second claim, and because the false association [**16] ground survives, the claim as a whole stands. This Court need not address whether Plaintiff and Defendant are direct competitors for the keyword “Styrotrim” at this point under a false advertising analysis.

B. Breach of Contract

Plaintiff’s sixth claim alleges breach of contract generally, but does not allege breach of an express provision. Instead, Plaintiff articulates in ¶ 116 of its Second Amended Complaint that the claim is for breach of the implied covenant of good faith and fair dealing. Because this is a [*1073] contractually based claim, a discussion of whether an underlying contractual breach is present is in order. That discussion follows.

1. Breach of Express Provision

HN10Go to the description of this Headnote.Under California law, to state a claim for breach of contract, plaintiff must show: 1) the existence of the contract; 2) plaintiff’s performance or excuse for nonperformance of the contract; 3) defendant’s breach of the contract; and 4) resulting damages. Armstrong Petrol Corp. v. Tri Valley Oil & Gas Co., 116 Cal. App. 4th 1375, 1391 n. 6, 11 Cal. Rptr. 3d 412 (2004). A contract requires consideration between the parties, or an exchange of some kind. Restatement (Second) of Contracts § 71 (1981).

Plaintiff alleges that it has a contract with [**17] Defendant, but has not referred to any written agreement between itself and Defendant above and beyond the AdWords policy. Plaintiff alleges no facts to support its contention that this policy was a contract between Plaintiff and Defendant, and not just a general policy statement on Defendant’s website. A broadly stated promise to abide by its own policy does not hold Defendant to a contract.

Even were a contract present, however, Plaintiff points to no breach of any express provision that would give rise to contractual liability. Plaintiff states that Defendant was required by the terms and conditions of the AdWords policy to investigate Plaintiff’s complaint of trademark infringement and to remove the trademarked keyword term from its database. However, by Plaintiff’s own admission in its Second Amended Complaint, Defendant did not violate its policy: “…[Defendant] does not prohibit itself from misusing the trademark of the owner in the keyword suggestion tool…Further, the stated policy of investigating ad words and keywords is not applicable in the United States…” (Second Am. Compl. ¶¶ 113-114).

Defendant attaches in Exhibit B to the Declaration of Margaret M. Caruso (ECF No. [**18] 42) its Adwords policy 5, which does in fact state that it will not disable keywords in response to a trademark complaint in several regions including the United States. It follows then, that Defendant did not violate any express provision of its policy or of any contract which may have existed.

FOOTNOTES

5 HN11Go to the description of this Headnote.U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) permits a document to be considered part of the complaint if plaintiff refers to the document extensively. Defendant may proffer the document at the 12(b)(6) stage when plaintiff has omitted references to the document upon which his claims are based. Plaintiff has done that here. This Court therefore incorporates by reference, Defendant’s Adwords policy provided in support of its Motion to Dismiss (ECF No. 42).

Plaintiff [**19] alleges that Defendant breached the implied covenant of good faith and fair dealing by taking a strong stance against trademark infringement, yet encouraging misuse of trademarks in the keyword suggestion tool. Defendant’s stated policy is that in the United States it [*1074] will only investigate trademark infringements where they appear in the ad itself, and not in the keywords. Defendant did not violate, but rather followed, the terms of its policy, and because this conduct was expressly permitted, good faith is satisfied. Since the implied covenant cannot override express provisions, Plaintiff may not force Defendant to do what the provision states it will not do, and insist on an investigation of keywords. Defendant has not breached the implied covenant of good faith and fair dealing as alleged by Plaintiff.

Plaintiff is unable after a third opportunity to allege conduct constituting breach of an existing contract or the implied covenant of good faith and fair dealing. This Court presumes, then, that Plaintiff cannot remedy this defect. Accordingly, Defendant’s Motion to Dismiss Plaintiff’s sixth Claim for breach of contract is GRANTED without further leave to amend.

CONCLUSION

For the reasons [**20] set forth above, Defendant’s Motion to Dismiss Plaintiff’s Second Amended Complaint (ECF No. 41) is GRANTED in part and DENIED in part. Defendant’s Motion to Dismiss Plaintiff’s Second Claim for Relief pursuant to Federal Rule of Civil Procedure 12(b)(6) is DENIED.

Defendant’s Motion to Dismiss Plaintiff’s Sixth Claim for Relief pursuant to Federal Rule of Civil Procedure 12(b)(6) is GRANTED, without further leave to amend. 6

FOOTNOTES

6 Because oral argument would not be of material assistance, this matter was deemed suitable for decision without oral argument. E.D. Cal. Local Rule 230(g).

Through this action, Plaintiff Daniel Jurin (“Plaintiff”) alleges several violations of state and federal law arising out of the use of its trademarked name “Styrotrim” by Defendant Google, Inc. Click for Enhanced Coverage Linking Searches(“Defendant”). Presently before the Court is Defendant’s Motion to Dismiss Plaintiff’s Second and Sixth Causes of Action for failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) 1. As set forth below, Defendant’s Motion will be granted in part and denied in part.

FOOTNOTES

1 All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure unless otherwise noted.

BACKGROUND2

FOOTNOTES

2 The factual assertions in this section are based on the allegations in Plaintiff’s Complaint unless otherwise specified.

Defendant is a highly recognized corporation most known for its widely used search engine website. As part of operating its search engine, Defendant “indexes” websites, and collects information regarding their contents so that it, in turn, can store the information for use in formulas which respond to search queries. Generally, when a user enters a query into Defendant’s website, the search engine will process relevant websites based on several information factors and then return results to the user.

Web designers routinely use this process to influence their ranking on Defendant’s results page. Prior to building a site, web designers will often conduct a keyword search using various available keyword tools in order to determine what terms or phrases internet users are most commonly searching for. A web designer will then build its site around more popular search terms in order to ensure a higher rank on a search engine results page.

Additionally, those with more capital may advertise their websites by “bidding” on keywords. A web designer can construct an ad using popular keywords, and then pay a search engine provider a fee to bid on those keywords [**3] in an effort to appear on a search engine results page as a “Sponsored Link” whenever users enter those keywords in their search queries. The higher a web designer bids, the higher the “Sponsored Link” placement when those bid-upon keywords are searched for. “Sponsored Links” appear either at the top or along the side of a search engine results page. As part of its business, Defendant allows advertisers to bid on keywords in a program called “Google AdWords” (“AdWords”) and through this program, encourages advertisers to bid on additional relevant keywords using a “keyword suggestion tool.”

B. Plaintiff’s Suit

Plaintiff owns a company which markets and sells its trademarked “Styrotrim” building material to homeowners, contractors, and those in the construction and remodeling industries. Plaintiff filed suit in this case based on Plaintiff’s competitors’ alleged unauthorized use of its trademarked name as a generic keyword, with the alleged encouragement of Defendant’s keyword suggestion tool in its AdWords program.

Defendant’s keyword suggestion tool picked up the trademarked name “Styrotrim” as a commonly searched term and thereafter suggested it as a keyword to bidders in AdWords. Defendant’s [**4] AdWords program has a policy recognizing the importance of trademarks and states in its terms and conditions that it prohibits intellectual property infringement by advertisers. In this policy, Defendant states it will investigate matters raised by trademark owners. Additionally, the terms and conditions of this policy lay out precisely the scope of investigation it will conduct based on the region in which the trademark holder resides. In the United States, the scope of the investigation will only cover trademarks appearing in the text of advertisements, and not bid-upon keywords.

By both allowing and encouraging Plaintiff’s competitors to bid on the keyword “Styrotrim,” Defendant caused their advertisements to appear as “Sponsored Links” on a results page whenever a user searches for “Styrotrim.” And, where Plaintiff’s competitors have placed a higher bid on its own trademark, they will appear at a higher rank in the list of “Sponsored Links.”

[*1069] Plaintiff now alleges that through AdWords, Defendant misappropriated Plaintiff’s trademark name for its own profit and breached its contract with Plaintiff by failing to investigate trademark infringement as required by the Adwords policy. Plaintiff [**5] alleges Defendant generates advertising revenue from Plaintiff’s competitors, and facilitates their infringement of Plaintiff’s trademark. Plaintiff alleges that Defendant’s actions have caused a dilution of its consumer base by often causing competitors to appear in a position higher than Plaintiff on a results page where they have placed a higher bid on its trademark name. Plaintiff argues this arrangement confuses consumers into believing that a competitor’s product is preferable to Plaintiff’s and is a form of “bait and switch” advertising purposefully using Plaintiff’s trademarked name to misdirect “Styrotrim” consumers away from Plaintiff’s site. Additionally, Plaintiff alleges that consumers may become confused as to whether its competitors are associated with Plaintiff’s product.

STANDARD

HN1Go to the description of this Headnote.On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief” in order to [**6] “give the defendant fair notice of what the…claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964, 167 L. Ed. 2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the “grounds” of his “entitlement to relief” requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Id. at 1964-65 (internal citations and quotations omitted). Factual allegations must be enough to raise a right to relief above the speculative level. Id. at 1965 (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-36 (3d ed. 2004) (“The pleading must contain something more…than…a statement of facts that merely creates a suspicion [of] a legally cognizable right of action”)).

HN2Go to the description of this Headnote.”Rule 8(a)(2)…requires a ‘showing,’ rather than a blanket assertion of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only ‘fair notice’ of the nature of the claim, but also [**7] ‘grounds’ on which the claim rests.” Twombly, 550 U.S. 544 n.3, 127 S. Ct. 1955, 167 L. Ed. 2d 929. A pleading must contain “only enough facts to state a claim to relief that is plausible on its face.” Id. at 570. If the “plaintiffs…have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.” Id. Nevertheless, “[a] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and ‘that a recovery is very remote and unlikely.'” Id. at 556.

HN3Go to the description of this Headnote.A court granting a motion to dismiss a complaint must then decide whether to grant leave to amend. A court should “freely give” leave to amend when there is no “undue delay, bad faith[,] dilatory motive on the part of the movant,…undue prejudice to the opposing party by virtue of…the amendment, [or] futility of the amendment….” Fed. R. Civ. P. 15(a); [*1070] Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962). Generally, leave to amend is denied only when it is clear the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).

ANALYSIS

A. Lanham Act

Plaintiff’s Second Amended Complaint alleges that Defendant’s use of the [**8] term “Styrotrim” in its keyword suggestion tool, and its publishing of “Sponsored Links” in response to an online search for “Styrotrim,” constitutes false designation of origin in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). Specifically, Plaintiff alleges that “advertising competitors of ‘Styrotrim’ in the building materials industry are falsely misled that the keyword ‘Styrotrim’ is a generic word and not an abstract trademarked term.” According to Plaintiff, its competitors are in this way induced to infringe on Plaintiff’s trademark.

Plaintiff further argues that end users have a reasonable expectation that the websites provided to them on Defendant’s search results page are associated with Plaintiff. Plaintiff claims that said consumers may become “confused, mistaken, misled and/or deceived” that the “Sponsored Links” are affiliated with Plaintiff or are themselves producers of “Styrotrim.”

HN4Go to the description of this Headnote.The Lanham Act was intended to make “actionable the deceptive and misleading use of marks,” and “to protect persons engaged in…commerce against unfair competition.” 15 U.S.C. § 1127. Section 43(a) of the Lanham Act, codified at 15 U.S.C. § 1125(a), creates a federal remedy [**9] against a person who “used in commerce a ‘false designation of origin, or any false description or representation’ in connection with ‘any goods or services.'” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 29, 123 S. Ct. 2041, 156 L. Ed. 2d 18 (2003).

“(1) any person who…uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designations of origin, false or misleading description of fact, or false or misleading representation of fact, which…

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.”

HN6Go to the description of this Headnote.To bring a false association claim, § 1125(a)(1)(A) requires the holder of a valid trademark to show that a defendant’s illicit use of its mark in commerce has caused consumers to become confused, mistaken, misled and/or deceived as to the producer of the goods offered for sale. [*1071] Waits v. Frito-Lay, Inc., 978 F.2d 1093, 1109-10 (9th Cir. 1992). Unlike the false advertising prong of § 1125(a), a false association claim does not require parties to be direct competitors. Id.; see also Jack Russell Terrier Network v. Am. Kennel Club, Inc., 407 F.3d 1027, 1036-37 (9th Cir. 2005).

Plaintiff’s Second Amended Complaint alleges that Defendant’s use of AdWords program and its keyword suggestion tool has caused a false association between Plaintiff’s “Styrotrim” building materials and those of its competitors. Plaintiff alleges that internet users who enter the keyword “Styrotrim” on Defendant’s search engine, and view the websites for Plaintiff’s competitors [**11] in “Sponsored Links,” may become confused as to which company is the producer of “Styrotrim,” or whether competitors are associated with “Styrotrim.”

Defendant does not dispute that Plaintiff has standing to bring a claim for false association. Rather, Defendant’s sole contention as to this prong is that § 1125(a)(1)(A) should be construed narrowly such that the defendant must be the producer of the goods that the plaintiff has alleged caused confusion with its own goods. Because Defendant is a search engine, and not a producer of building materials, Defendant argues that Plaintiff’s claim is not properly brought against it.

Defendant cites to two cases to support this contention: Facenda v. N.F.L. Films, Inc., 542 F.3d 1007, 1014 (3d Cir. 2008) and Cairns v. Franklin Mint Co., 24 F. Supp. 2d 1013, 1032 (C.D. Cal. 1998). However, neither of these cases address the issue of whether the statute requires defendant to be the producer of the goods at issue.

The former case merely states the issue as it applies to the particular facts of that case, which did involve a direct competition between the plaintiff and defendant. The latter case is concerned with the issue of who may be a plaintiff, [**12] and not who may be a defendant. In fact, this same case goes on to state that HN7Go to the description of this Headnote.the statutory language, “another person” was purposefully selected with the intent that it be applied broadly, and that these words indicate Congressional intent to make § 1125(a)(1)(A) an expansive provision. Cairns, 24 F. Supp. 2d at 1032-33.

Cairns was right to point out that the language of § 1125(a)(1)(A) is general in nature. In referring to parties who may be involved, the statute uses indefinite language such as “any person” and “another person.” Further, the legislative history for the 1988 amendments 3 to § 43(a) of the Lanham Act contains a report by the International Trademark Association confirming legislative intent to construe the provision broadly. This report explains in detail the underlying rationale for each recommended amendment. In the section of the report recommending changes to § 43(a) , the report duly noted the fact that the original 1946 version of § § 43(a) was very narrow in scope, but was subsequently interpreted quite broadly by judges over ensuing years. The report goes on to state that it “believes it advisable to conform the language of § 43(a) to the expanded scope of protections [**13] applied by the courts.”

FOOTNOTES

3 The 1988 amendments first split § 43(a) into the two separate prongs for false association and false advertising. The original 1946 version of § 43(a) had no subsections. Lanham Act of 1946, Pub. L. No. 489, § 1125(a), 60 Stat. 427, 441 (1946) (amended 1988).

The report then notes that it wished to “make it clear that we encourage the courts to give our amended section the same innovative interpretation they have given the original.” “The United States Trademark Association Trademark Review [*1072] Commission Report and Recommendations to USTA President and Board of Directors,” 77 T.M. Rep. 375, 426-27 (1987). See also 133 Cong. Rec. 32812 (1987) (statement of Sen. DeConcini) (“The bill I am introducing today is based on the Commission’s report and recommendations”). Given the very broad and general language of § 1125(a) and the legislative history encouraging courts to interpret innovatively, Defendant has very little, if any, support for a narrow construction of the statute.

Finally, if this Court were to superimpose the words “plaintiff” and “defendant” over the general language of the statute, as Defendant advocates, it would undermine HN8Go to the description of this Headnote.an abundance of case law explicitly [**14] holding that subsection (A) does not require defendant to be a “direct competitor” of plaintiff. See e.g. Jack Russell Terrier Network 407 F.3d at 1036-37; Waits, 978 F.2d at 1109-10. A competitor in the sale of goods is defined as persons endeavoring to furnish the same merchandise. Kournikova, 278 F. Supp. 2d at 1117. With very few exceptions in suits over false designation of goods, if a defendant must be the producer of the goods that are confused with plaintiff’s goods, it must necessarily be a direct competitor of plaintiff. Neither case law nor congressional intent provides support for the dramatic change in statutory interpretation espoused by Defendant.

Because of both long-standing tradition in the case law, as well as clearly stated legislative intent in interpreting § 43(a) of the Lanham Act broadly, this Court declines to require Defendant to be the producer of goods in order to continue a claim for false association. Because a narrow construction of the statute was Defendant’s only argument against Plaintiff’s claim for false designation of origin, the claim stands. 4 Defendant’s Motion to Dismiss Plaintiff’s second claim for false designation of origin is denied.

FOOTNOTES

4 To the [**15] extent this conclusion runs counter to the Court’s previous orders (ECF Nos. 19, 39) on Defendant’s prior Motions to Dismiss, the Court has now concluded that the analysis set forth herein is the correct one. Any earlier determination to the contrary is hereby revised in accordance with the provisions of Federal Rule of Civil Procedure 54(b).

2. False Advertising

Plaintiff also alleges that Defendant’s AdWords program constitutes false advertising. HN9Go to the description of this Headnote.False advertising claims arising under 15 U.S.C. § 1125(a)(1)(B) must show that the holder of a valid trademark has sustained a competitive injury from a defendant’s illicit use of the trademark in advertising that misrepresents plaintiff’s goods. Jack Russell Terrier Network, 407 F.3d at 1037. A ‘competitive injury’ occurs when a direct competitor, defendant, harms the plaintiff’s ability to compete with it in their shared marketplace. Id.

Plaintiff contends that it did sustain a competitive injury from Defendant’s misappropriation of its trademark because the two companies are competitors for the word “Styrotrim.” Because Plaintiff has alleged both false association and false advertising in its second claim, and because the false association [**16] ground survives, the claim as a whole stands. This Court need not address whether Plaintiff and Defendant are direct competitors for the keyword “Styrotrim” at this point under a false advertising analysis.

B. Breach of Contract

Plaintiff’s sixth claim alleges breach of contract generally, but does not allege breach of an express provision. Instead, Plaintiff articulates in ¶ 116 of its Second Amended Complaint that the claim is for breach of the implied covenant of good faith and fair dealing. Because this is a [*1073] contractually based claim, a discussion of whether an underlying contractual breach is present is in order. That discussion follows.

1. Breach of Express Provision

HN10Go to the description of this Headnote.Under California law, to state a claim for breach of contract, plaintiff must show: 1) the existence of the contract; 2) plaintiff’s performance or excuse for nonperformance of the contract; 3) defendant’s breach of the contract; and 4) resulting damages. Armstrong Petrol Corp. v. Tri Valley Oil & Gas Co., 116 Cal. App. 4th 1375, 1391 n. 6, 11 Cal. Rptr. 3d 412 (2004). A contract requires consideration between the parties, or an exchange of some kind. Restatement (Second) of Contracts § 71 (1981).

Plaintiff alleges that it has a contract with [**17] Defendant, but has not referred to any written agreement between itself and Defendant above and beyond the AdWords policy. Plaintiff alleges no facts to support its contention that this policy was a contract between Plaintiff and Defendant, and not just a general policy statement on Defendant’s website. A broadly stated promise to abide by its own policy does not hold Defendant to a contract.

Even were a contract present, however, Plaintiff points to no breach of any express provision that would give rise to contractual liability. Plaintiff states that Defendant was required by the terms and conditions of the AdWords policy to investigate Plaintiff’s complaint of trademark infringement and to remove the trademarked keyword term from its database. However, by Plaintiff’s own admission in its Second Amended Complaint, Defendant did not violate its policy: “…[Defendant] does not prohibit itself from misusing the trademark of the owner in the keyword suggestion tool…Further, the stated policy of investigating ad words and keywords is not applicable in the United States…” (Second Am. Compl. ¶¶ 113-114).

Defendant attaches in Exhibit B to the Declaration of Margaret M. Caruso (ECF No. [**18] 42) its Adwords policy 5, which does in fact state that it will not disable keywords in response to a trademark complaint in several regions including the United States. It follows then, that Defendant did not violate any express provision of its policy or of any contract which may have existed.

FOOTNOTES

5 HN11Go to the description of this Headnote.U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) permits a document to be considered part of the complaint if plaintiff refers to the document extensively. Defendant may proffer the document at the 12(b)(6) stage when plaintiff has omitted references to the document upon which his claims are based. Plaintiff has done that here. This Court therefore incorporates by reference, Defendant’s Adwords policy provided in support of its Motion to Dismiss (ECF No. 42).

Plaintiff [**19] alleges that Defendant breached the implied covenant of good faith and fair dealing by taking a strong stance against trademark infringement, yet encouraging misuse of trademarks in the keyword suggestion tool. Defendant’s stated policy is that in the United States it [*1074] will only investigate trademark infringements where they appear in the ad itself, and not in the keywords. Defendant did not violate, but rather followed, the terms of its policy, and because this conduct was expressly permitted, good faith is satisfied. Since the implied covenant cannot override express provisions, Plaintiff may not force Defendant to do what the provision states it will not do, and insist on an investigation of keywords. Defendant has not breached the implied covenant of good faith and fair dealing as alleged by Plaintiff.

Plaintiff is unable after a third opportunity to allege conduct constituting breach of an existing contract or the implied covenant of good faith and fair dealing. This Court presumes, then, that Plaintiff cannot remedy this defect. Accordingly, Defendant’s Motion to Dismiss Plaintiff’s sixth Claim for breach of contract is GRANTED without further leave to amend.

CONCLUSION

For the reasons [**20] set forth above, Defendant’s Motion to Dismiss Plaintiff’s Second Amended Complaint (ECF No. 41) is GRANTED in part and DENIED in part. Defendant’s Motion to Dismiss Plaintiff’s Second Claim for Relief pursuant to Federal Rule of Civil Procedure 12(b)(6) is DENIED.

Defendant’s Motion to Dismiss Plaintiff’s Sixth Claim for Relief pursuant to Federal Rule of Civil Procedure 12(b)(6) is GRANTED, without further leave to amend. 6

FOOTNOTES

6 Because oral argument would not be of material assistance, this matter was deemed suitable for decision without oral argument. E.D. Cal. Local Rule 230(g).

This case raises complex allegations of trademark infringement on the internet — through the use of trademarks in search engines, in sponsored links, and on commercial websites. The Plaintiff, Hearts on Fire Co., LLC (“Hearts on Fire”), principally claims that one of its competitors, Blue Nile, Inc. (“Blue Nile”), committed trademark infringement when it used the Plaintiff’s trademark as a keyword to trigger search engine advertisements known as “sponsored links.” While sponsored linking is a common form of internet advertising, the use of a competitor’s trademark to trigger these links has generated both [**2] litigation and academic debate. 1

The Complaint encompasses three different uses of the Plaintiff’s mark by Blue Nile: (1) the Defendant’s purchase of the trademark as a search engine keyword, which displayed a sponsored link directing the computer user to Blue Nile’s website whenever the phrase “hearts on fire” was entered as a search-term, (2) the display of trademarked text in the Blue Nile advertisement attached to the sponsored link, and (3) the search results list generated within the Blue Nile website when the computer user searches there for the phrase “hearts on fire.” Together, the Plaintiff argues, these uses constitute a course of conduct likely to confuse internet shoppers, improperly diverting them to its competitor’s website.

The Defendant has filed a Motion to Dismiss (document # 5). Significantly, the Defendant’s present motion is not directed toward Plaintiff’s allegation that the trademark “hearts on fire” appeared alongside [*278] Defendant’s sponsored link. See Compl. P 21. Blue Nile agrees that this allegation, if true, amounts to infringement. [**3] Def. Mot. to Dismiss Mem. at 1 (document # 6). Rather, Blue Nile asks this Court to dismiss the Plaintiff’s allegation that the Defendant’s use of the trademark to trigger the sponsored link constitutes infringement under Section 32(1)(a) of the Lanham Act, 15 U.S.C. ß 1114. Likewise, the Defendant argues that Plaintiff’s third theory is unavailing, because Blue Nile does not use the “hearts on fire” trademark on its own website.

For the reasons below, the Court finds that Blue Nile’s adoption of the Plaintiff’s trademark as a search engine keyword constitutes a “use” within the meaning of the Lanham Act. To be sure, this use is not, by itself, enough to prove infringement. If the Plaintiff can show that the resulting sponsored links and the content of the Blue Nile website likely led to consumer confusion, Blue Nile’s purchase of the search term would meet the requirements of the Act. Accordingly, Blue Nile’s Motion to Dismiss is DENIED.

I. BACKGROUND

The Plaintiff sells trademarked diamonds and jewelry to authorized retailers, many of whom resell these diamonds online. Compl. P 2 (document # 1). “Hearts on Fire” is a registered trademark of the Plaintiff, and the name of the Plaintiff’s [**4] diamond company. Id. at P 14. The Plaintiff does not sell diamonds directly to the public, though it does “provide services relating to the sale of jewelry,” including a public website that promotes the trademarked jewelry and directs customers to authorized dealers of the trademarked diamonds. Id. The Plaintiff considers itself a “recognized worldwide industry leader,” which has used the trademark “Hearts on Fire” to promote its diamonds since as early as 1996. Id.

The Defendant, Blue Nile, operates an online diamond and jewelry retail store where consumers can purchase diamonds. Id. at 3. Importantly, the Defendant is not an authorized dealer of Hearts on Fire diamonds and consumers cannot buy the Plaintiff’s trademarked diamonds at the Defendant’s website. Id.

The mechanisms of the alleged infringement, which is based upon keyword purchasing and the display of search engine sponsored links, warrant some description. When a consumer wants to search the internet for information, she or he often begins at a search engine, such as Google or Yahoo. Once there, the computer user types words or phrases into a search box on the search engine website. The search engine then generates a list [**5] of web addresses, called a “search results list,” that may be relevant to the computer user’s interests based on the searched-for word or phrase. Search engines use complex algorithms to search their databases and determine which web addresses will appear in the search results list. These algorithms generally rank the web addresses according to relevancy, using factors such as whether the search terms appear on the webpage and whether previous computer users using that search term have decided to click on the link to the web address. See Jackson v. Scotts Co., 2009 U.S. Dist. LEXIS 14454, 2009 WL 321010, at *6 n.32 (S.D.N.Y. 2009) (citing Preston Gralla, How the Internet Works 192 (7th ed. 2004)); Playboy Enters., Inc. v. Netscape Comm’ns Corp., 55 F. Supp. 2d 1070, 1077 (C.D. Cal. 1999).

In addition to search results based on relevancy, many search engines also display so-called “sponsored links” on their results page. These sponsored links are a form of advertising, by which the search engine permits a company to purchase a keyword or phrase which triggers the paid advertisement. Specifically, when a computer [*279] user enters a search that includes the purchased keyword, a link to the website of the company that purchased [**6] the keyword, together with a small advertisement, appears near the top of the results list displayed. This listing is usually demarcated, quite accurately, as a “sponsored link.” All in all, purchasing a keyword allows a company to circumvent the search engine’s usual relevancy factors and prominently display its sponsored link to internet users.

In this case, the Plaintiff alleges that the Defendant paid a search engine, www.webcrawler.com, to display a sponsored link with the web address of the Defendant’s website when a computer user searched for the phrase “hearts on fire.” Compl. P 21. The text of the sponsored link, which included the Plaintiff’s trademark, reads as follows:

Ideal Cut Diamonds at Blue Nile

Find hearts on fire diamonds at Forbes Favorite Online Jeweler.

Sponsored by: www.bluenile.com.

Id. The Plaintiff also alleges that the Defendant has used the “hearts on fire” keyword to trigger Blue Nile sponsored links that do not include the trademark in their text. Id. at P 23. In either case, if the internet user clicks the sponsored link and proceeds to the Defendant’s web address, www.bluenile.com, the Blue Nile website contains an internal search engine that exclusively [**7] searches web pages within the Defendant’s website. If the computer user then types the trademarked phrase into the Defendant’s search box, a list of search results containing the individual words of the trademark are displayed — i.e., a list of webpages with the words “hearts” or “on fire” – albeit none of these results containing the exact trademarked phrase. Id. at P 24.

The Plaintiff alleges that these uses of its mark, either separately or together, constitute trademark infringement under Section 32(1)(a) of the Lanham Act, 15 U.S.C. ß 1114, 2 unfair competition under Section 43(a) of the Lanham Act, 15 U.S.C. ß 1125(a), 3 unfair competition at common law, and unfair and deceptive practices under M.G.L. ch. 93A. Compl. P 37. Plaintiff is harmed because Defendant’s use of the “hearts on fire” trademark confuses consumers, diverting potential internet customers from their original intent to buy the Plaintiff’s diamonds and directing them instead to the Defendant’s website. Id. at P 27. Whether this diversion — achieved through the purchase of sponsored links triggered by the trademarked phrase — constitutes trademark infringement is the central issue here.

(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive – shall be liable in a civil action by the registrant for the remedies hereinafter provided.

Any person who . . . uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false, or misleading description of fact, or false or misleading representation of facts, which is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person . . . shall be liable in a civil action by any person who believes that he or she is likely to [**9] be damaged by such act.

[*280] II. STANDARD OF REVIEW

In deciding whether to grant a motion to dismiss under Fed. R. Civ. P. 12(b)(6), this Court must determine whether the Plaintiff has stated a claim upon which relief can be granted. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S. Ct. 992, 152 L. Ed. 2d 1 (2002) (citing Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). The Court must accept as true the claims in the complaint, with all reasonable inferences drawn in favor of the Plaintiff. Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993). A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the Plaintiff can prove no set of facts in support of its claim. See Miranda v. Ponce Fed’l Bank, 948 F.2d 41, 44 (1st Cir. 1991) (citing Conley, 355 U.S. at 45). The Plaintiff’s factual allegations, however, must be more than speculative, and require more than labels and conclusions. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964, 167 L. Ed. 2d 929 (2007). Thus, dismissal would be appropriate if “it appears from the facts alleged that the claimant cannot recover on any viable theory.” Rumford Pharm., Inc. v. City of East Providence, 970 F.2d 996, 998 (1st Cir. 1992).

III. DISCUSSION

The Defendant has [**10] filed a partial motion to dismiss, seeking to eliminate the first and third theories of trademark violation that the Plaintiff pursues, namely the Defendant’s purchase of the “hearts on fire” trademark as a keyword to trigger sponsored links, and the results when “hearts on fire” is entered into the Defendant’s internal search engine. As described above, the Defendant has not challenged the allegation that the sponsored link’s display of the exact trademarked phrase as part of the accompanying advertisement, if proved, would amount to a trademark violation.

A. The Lanham Act

The Lanham Act, 15 U.S.C. ßß 1051 et seq., serves two basic purposes: foremost, preventing the use of similar or identical marks in a way that confuses the public about the actual source of the goods and services; and second, the protection of the goodwill that companies have built up in their trademarks. See, e.g., ICEE Distribs., Inc. v. J & J Snack Foods Corp., 445 F.3d 841, 846 (5th Cir. 2006); S. Rep. No. 1333, 19th Cong.2d Sess., reprinted in 1946 U.S. Code Cong. Serv. 1274-76 (stating that the Lanham Act would “secure trademark owners in the goodwill which they have built up and . . . protect the public from [**11] imposition by the use of counterfeit and imitated marks”). To establish liability, the Plaintiff must ultimately prove that (1) it owns and uses the “Hearts on Fire” trademark; (2) the Defendant used the trademark without the Plaintiff’s permission; and (3) the Defendant’s use was likely to confuse consumers, thereby causing the Plaintiff harm. See Venture Tape Corp. v. McGills Glass Warehouse, 540 F.3d 56, 60 (1st Cir. 2008). While the Plaintiff has clearly pleaded facts sufficient to show that it owns the trademark, the parties debate whether the keyword purchase constitutes a “use” under the Lanham Act and what standard of confusion the Plaintiff must meet.

B. The “Use” Requirement

As an initial matter, this Court must resolve whether the purchase of a trademarked keyword to trigger a sponsored link constitutes a “use” of that trademark, as the first prong of the Lanham Act requires. The circuits have split on the issue; the First Circuit has not yet squarely decided such a case. 4

4 The First Circuit recently considered a similar, though not identical, case of internet trademark infringement, where the defendant company had allegedly embedded in its website invisible HTML code, or [**12] “meta-tags”, containing its competitor’s trademark, in order to attract increased search engine traffic. See Venture Tape Corp. v. McGills Glass Warehouse, 540 F.3d 56 (1st Cir. 2008). In its analysis, however, the First Circuit focused exclusively on the second prong of the Lanham Act, the likelihood of consumer confusion. Id. at 60-62. It assumed, without deciding, that the defendant’s embedding of the trademark in invisible meta-tags qualified as a “use” under the first prong of the Lanham Act, despite the fact that consumers do not see such embedded marks. See id. at 60 n.5 (“Further, McGills concedes that, without Venture’s permission, Gallagher embedded the marks verbatim on the McGills website.”). With this question still unresolved, this Court is obliged to conduct an independent inquiry into whether the “use” requirement has been met here, reaching a conclusion consistent with the First Circuit’s assumption in Venture Tape. Id. at 60-62.

[*281] At present, the Second Circuit stands alone in holding that the purchase of a competitor’s trademark to trigger internet advertising does not constitute a use for the purposes of the Lanham Act. The pivotal case, 1-800 Contacts, Inc. v. WhenU.Com, [**13] Inc., did not involve sponsored links as here, but rather a different form of internet advertising known as “pop-up ads.” 414 F.3d 400 (2d Cir 2005); see also Merck & Co. v. Mediplan Health Consulting Inc., 425 F. Supp. 2d 402 (S.D.N.Y. 2006) (applying rationale of 1-800 Contacts to sponsored links). In 1-800 Contacts, Vision Direct, a phone directory company and competitor of 1-800 Contacts, Inc., paid WhenU.com to display a pop-up advertisement on a computer user’s screen whenever he or she entered “www.1800contacts.com” as a web address. Id. at 405. The pop-up ad created a new window with Vision Direct’s advertisement, temporarily blocking the 1800contacts.com website from view. Id.

Crucially, the Second Circuit held that the www.1800contacts.com web address was “similar, but not identical” to the company’s protected trademark, “1-800 CONTACTS.” Id. at 408. Likewise, because the pop-up advertisement did not actually display the 1-800 Contacts trademark anywhere in its text, the Second Circuit held that there was no “use” of the trademark within the meaning of the Lanham Act. 5 In this view, only the web address — not the trademark itself — was used to trigger the Vision Direct [**14] advertisement, and even that use was confined to an internal software directory never seen by the internet user. As such, the Second Circuit found that the pop-up ad did not rely on any use of the trademark itself, nor did it create any possibility of “visual confusion” with 1-800 Contacts’ mark. Id. at 409.

5 The Second Circuit and several district courts therein have relied on the definitions section of the Lanham Act, 15 U.S.C. ß 1127, to exclude any use that does not involve the display of the actual trademark. See Merck & Co., Inc. v. Mediplan Health Consulting, Inc., 425 F. Supp. 2d 402, 415 (S.D.N.Y. 2006). The definitions section reads:

[A] mark shall be deemed to be in use in commerce–

(1) on goods when–

(A) it is placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sale, and

(B) the goods are sold or transported in commerce, and

(2) on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce . . .

While 1-800 Contacts carefully [**15] distinguished the pop-up advertisement context from the keyword context, id. at 410, lower courts in the Second Circuit have gone further. They have applied that same reasoning to keyword cases, holding that a company’s purchase of a competitor’s trademark to trigger sponsored links does not qualify as a “use.” Merck & Co. v. [*282] Mediplan Health Consulting Inc., 425 F. Supp. 2d 402 (S.D.N.Y. 2006); Rescuecom Corp. v. Google Inc., 456 F. Supp. 2d 393 (N.D.N.Y. 2006); Site-Pro-1 Inc. v. Better Metal LLC, 506 F. Supp. 2d 123 (E.D.N.Y. 2007). Whether such an extension of the Second Circuit’s reasoning in 1-800 Contacts, a pop-up ad case, is warranted in a sponsored-link case like this one is questionable.

6 Unlike a sponsored link, banner advertisements are not displayed as part of a search results list, but instead often occupy the margins of a webpage.

Rather than relying only on the Act’s definitions section as the Second Circuit has done, see note 5, supra, these courts often look also to its civil remedies provision, which defines “use” more broadly. Compare 15 U.S.C. ß 1127 (definitions section), with 15 U.S.C. ß 1114 (civil remedies provision); see also Boston Duck Tours, 527 F. Supp. 2d at 207 (finding that “sponsored linking necessarily entails the ‘use’ of the plaintiff’s mark as part of a mechanism for advertising,” based on the statute’s “plain language”). In particular, the civil remedies provision penalizes the “use in commerce” [**17] of “any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services.” 15 U.S.C. ß 1114 (emphasis added); see also note 2, supra. The purchase of a competitor’s trademark to trigger search-engine advertising is precisely such a use in commerce, even if the trademark is never affixed to the goods themselves. In effect, one company has relied on its competitor’s trademark to place advertisements for its own products in front of consumers searching for that exact mark. The Lanham Act’s use requirement is not so narrow or cramped that it would fail to treat this conduct as a “use in commerce.”

Even the Act’s definitions section, which pre-dates the advent of internet commerce and advertising, treats as a “use in commerce” any use of the trademark on “displays associated” with the goods offered for sale. 15 U.S.C. ß 1127. On the facts of this case, by contrast to 1-800 Contacts, 414 F.3d 400, a computer user’s search for the trademarked phrase necessarily involves a display of that trademark as part of the search-results list. For instance, if a computer user searches for [**18] the “hearts on fire” trademark at www.webcrawler.com, the text “Web search results for ‘hearts on fire'” is prominently displayed above the search results, including the sponsored links. Indeed, this display is exactly what the Defendant paid for: the association of Blue Nile’s sponsored link with the searched-for trademark.

In light of the Lanham Act’s language and the broader purposes of the trademark [*283] statute, there is little question that the purchase of a trademarked keyword to trigger sponsored links constitutes a “use” within the meaning of the Lanham Act.

C. Likelihood of Confusion

Although Blue Nile’s alleged keyword purchase fulfills the “use” prong of the Lanham Act, it is only one element of trademark infringement and does not constitute a violation in and of itself. The Plaintiff still must prove a likelihood of confusion, which generally involves a far more fact-specific inquiry: whether “the allegedly infringing conduct carries with it a likelihood of confounding an appreciable number of reasonably prudent purchasers exercising ordinary care.” Int’l Ass’n of Machinists & Aero. Workers v. Winship Green Nursing Ctr., 103 F.3d 196, 201 (1st Cir. 1996).

At this stage in the case, [**19] there is no suggestion that diverted consumers inadvertently believed they were purchasing Hearts on Fire diamonds at Blue Nile’s website. No diamonds appearing on the website purport to be Hearts on Fire diamonds. Rather, Plaintiff relies on allegations of pre-sale confusion to support its infringement claim. See Pl.’s Opp. to Mot. to Dismiss at 8-12 (asserting both “traditional” pre-sale confusion and initial interest confusion). Most relevant in light of this partial Motion to Dismiss is Plaintiff’s argument that even those sponsored links which did not display its trademark likely confused consumers. That is, the simple fact an internet user entered a search for its trademarked diamonds and, in response, received a link to Blue Nile’s diamond retail website was enough to confuse the online shopper — even if the sponsored link did not use the trademark in its text at all. This sequence, according to the Plaintiff, was actionable because it sparked an initial interest in Blue Nile’s products, leading its potential customers astray in violation of trademark protections.

1. Initial Interest Confusion

The Plaintiff argues that the likelihood of confusion prong can be fulfilled in this [**20] case by resort to a trademark doctrine called “initial interest confusion.” Pl.’s Opp. to Mot. to Dismiss at 11 (document # 12). A somewhat ill-defined concept, initial interest confusion refers to a type of pre-sale confusion that has not been fully explored or addressed by the First Circuit. 7 Generally speaking, pre-sale confusion refers to a potential purchaser’s temporary confusion about the actual source of goods or services under consideration, even where that confusion is resolved by the actual moment of sale. There is no question that this type of confusion falls squarely within the scope of trademark violations contemplated by the Lanham Act. In fact, the 1962 amendments to the Act explicitly brought pre-sale confusion within the ambit of trademark protections. Lanham Act, ß 32(1)(a), as amended, 15 U.S.C. ß 1114(1)(a); Oct. 9, 1962, Pub. L. 87-772, ß 17, 76 Stat. 773 (removing the term “purchasers” to expand trademark protection to situations involving pre-sale as well as point-of-sale and post-sale confusion). Obviously, bringing pre-sale confusion within the Act did not lighten plaintiffs’ burden of showing confusion. They still must show that “an appreciable number of [**21] reasonably prudent consumers” would likely be confused about the source of the marketed goods or services at some point during the pre-sale process. See Keds Corp., 888 F.2d at 222-23.

7 See EMC Corp. v. Hewlett-Packard Co., 59 F. Supp. 2d 147, 150 (D. Mass. 1999) (concluding that the First Circuit had not squarely considered or taken a position on initial interest confusion).

[*284] Initial interest confusion targets one specific type of pre-sale confusion: It involves confusion at the very earliest stage — not with respect to the source of specific goods or services under consideration, but during the process of searching and canvassing for a particular product. The classic example is where a consumer sets out in search of one trademarked good, but is then sidetracked en route to his or her original destination by a competitor’s advertisement or offering. He or she is never confused as to the source or origin of the product he eventually purchases, but he may have arrived there through either misdirection or mere redirection. In effect, initial interest confusion involves the diversion of the consumer’s attention from one trademarked good to a competing good, even if he is not confused about [**22] the source of the products he ultimately considers or buys.

Early “initial interest confusion” cases in the bricks-and-mortar world involved the use of similar trademarks that might mislead a consumer searching for a particular product. In these cases, which appear relatively rare, the consumer did not buy the item believing that it was the trademarked good. Rather, he was confused at an early point in the pre-sale process. See Grotrian, Helfferich, Schulz, Th. Steinweg Nachf. v. Steinway & Sons, 523 F.2d 1331, 1342 (2d Cir. 1975) (piano company using similar name to trademarked company misled consumers); Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254 (2d Cir. 1987) (oil company with name invoking plaintiff’s trademarked logo confused oil traders into investing a considerable amount of time and effort into pre-sale negotiations with the defendant). 8

8 As several commentators note, “‘Initial interest confusion’ as originally conceived did not reflect a new doctrine; rather, it was a simple recognition that competition-distorting confusion can occur at times other than the point of sale.” Stacey Dogan and Mark Lemley, Trademarks and Consumer Search Costs on the Internet; 41 Hous. L. Rev. 777, 814 (2004).

As [**23] trademark doctrine has evolved, particularly in the internet context, initial interest confusion has been invoked in a widening range of scenarios. One was illustrated by the Ninth Circuit in Brookfield Communications Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1062 (9th Cir. 1999). There, the court compared invisible embedding of the plaintiff’s trademark in the defendant’s webpage (i.e., meta-tags) to a misleading billboard:

Suppose West Coast’s competitor (let’s call it ‘Blockbuster’) puts up a billboard on a highway reading — ‘West Coast Video: 2 miles ahead at Exit 7’ — where West Coast is really located at Exit 8 but Blockbuster is located at Exit 7. Customers looking for West Coast’s store will pull off at Exit 7 and drive around looking for it. Unable to locate West Coast, but seeing the Blockbuster store right by the highway entrance, they may simply rent there.

Id. at 1064. In this scenario, the trademark is employed not to fool the consumer about his eventual purchase, but to lead him astray on false pretenses and into the arms of a competitor. The Ninth Circuit held that this use of a competitor’s trademark in a meta-tag constituted infringement under an initial [**24] interest theory; a number of other courts have followed suit. See, e.g., Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1239 (10th Cir. 2006); Promatek Indus., Ltd. v. Equitrac Corp., 300 F.3d 808, 812-13 (7th Cir. 2002); JR Cigar, Inc. v. GoTo.com, Inc., 437 F. Supp. 2d 273 (D.N.J. 2006). Using a competitor’s trademark to lure a consumer off the highway and into one’s store, in this view, is little [*285] different from confusing the consumer when he steps through the door.

As a hypothetical, the Ninth Circuit’s billboard example may state a perfectly plausible case of trademark infringement. One company has used a direct display of its competitor’s mark to confuse consumers in a fashion that is costly, sustained, and not easily reversed. Whether the mark is used on the competing goods themselves or on a sign pointing the way makes little difference in the trademark calculus. The culprit has misappropriated the goodwill embodied by the protected mark and has increased consumer search costs through misdirection. But rarely are cases so clear as the Ninth Circuit’s billboard — particularly on the internet — and certainly not this one.

Indeed, sponsored link advertising invites a second [**25] type of comparison: Initial interest confusion, for example, has been invoked in circumstances where one company “piggybacks” on its competitor’s trademark, rewarding his search for one particular product with a choice among several similar items. Infringement is not nearly so obvious from this vantage point. Rather than a misleading billboard, this analogy is more akin to a menu — one that offers a variety of distinct products, all keyed to the consumer’s initial search. Sponsored linking may achieve precisely this result, depending on the specific product search and its context. When a consumer searches for a trademarked item, she receives a search results list that includes links to both the trademarked product’s website and a competitor’s website. Where the distinction between these vendors is clear, she now has a simple choice between products, each of which is as easily accessible as the next. If the consumer ultimately selects a competitor’s product, she has been diverted to a more attractive offer but she has not been confused or misled. 9 [**26] While she may have gotten to the search-results list via the trademarked name, once there, the advertised products are easily distinguished.

9 Consider, for instance, if Pepsi were to purchase sponsored links to its website triggered by an internet user’s search for the “Coca-Cola” trademark. Coca-Cola would have difficulty suing Pepsi for infringement on an initial interest theory because these two products are widely recognized as competitors and, accordingly, the likelihood of consumer confusion is exceedingly small.

In much the same way, keyword purchasing may, in many cases, be analogized to a drug store that “typically places its own store-brand generic products next to the trademarked products they emulate in order to induce a customer who has specifically sought out the trademarked product to consider the store’s less-expensive alternative.” 1-800 Contacts, Inc. v. WhenU.Com, Inc., 414 F.3d 400, 411 (2d Cir. 2005). The generic product capitalizes on the recognizable brand name but the consumer benefits by being offered a lower-cost product. At no point is the consumer confused about the alternatives presented to her. See generally Stacey L. Dogan & Mark A. Lemley, Trademarks and [**27] Consumer Search Costs on the Internet, 41 Hous. L. Rev. 777, 785 (2004) (arguing that the primary purpose of the Lanham Act is to reduce consumer search costs). The goodwill invested in the protected mark remains undisturbed while the consumer reaps the benefit of competing goods. 10 Trademark infringement would seem to be unsupportable in this scenario. [*286] Mere diversion, without any hint of confusion, is not enough.

10 The Plaintiff argues that the use of its trademark to divert internet traffic capitalizes on the trademark’s goodwill. Certainly, protecting a trademark’s goodwill is one of the twin goals of the Lanham Act. The Lanham Act “encourage[s] the production of quality products,” and simultaneously discourages those who hope to sell inferior products by capitalizing on a consumer’s inability to quickly evaluate the quality of an item offered for sale. Qualitex Co. v. Jacobson Prods. Co., Inc., 514 U.S. 159, 163-64, 115 S. Ct. 1300, 131 L. Ed. 2d 248 (1995) (quoting 1 McCarthy, ß 2.01 [2]). The crux of this second goal, however, is not simply to protect companies, but to do so in furtherance of consumer interests. Unlike patents and copyrights, trademarks are not property rights in gross, but rather “limited entitlements [**28] to protect against uses that diminish the informative value of marks.” Dogan & Lemley, supra, at 778-789 (citing S. Rep. No. 79-1333, at 1-17; E.I. Du pont De Nemours Powder Co. v. Masland, 244 U.S. 100, 102, 37 S. Ct. 575, 61 L. Ed. 1016, 1917 Dec. Comm’r Pat. 426 (1917)). Their use alone does not result in a violation.

2. Balancing Consumer Confusion and Consumer Search Costs

To be sure, the sponsored links appearing on a search-results page will not always be a menu of readily distinguished alternatives. With the intense competition for internet users’ attention and mouse-clicks, online merchants may well be tempted to blur these distinctions, hoping to create and capitalize on initial consumer confusion. Such conduct undoubtedly begins to sound in trademark infringement. Thus, where a plaintiff has plausibly alleged some consumer confusion, even at an initial stage of his product search, the question is a far closer one. The First Circuit does view pre-sale confusion, generally, as actionable – as the amended statute allows and as most circuits have since found. 11 15 U.S.C. ß 1114(1)(a). But the First Circuit has never addressed initial interest confusion. See Hasbro, Inc. v. Clue Computing, Inc., 232 F.3d 1, 2 (1st Cir. 2000) (crediting [**29] the lower court for its “refusal to enter the ‘initial interest confusion’ thicket”); EMC Corp. v. Hewlett-Packard Co., 59 F. Supp. 2d 147, 150 (D. Mass. 1999) (concluding that the First Circuit had not squarely considered or taken a position on initial interest confusion); Beacon Mut. Ins. Co. v. OneBeacon Ins. Group, 290 F. Supp. 2d 241 (D.R.I. 2003) (collecting initial interest confusion cases), rev’d on other grounds, 376 F.3d 8 (1st Cir. 2004). But see Northern Light Tech. v. Northern Lights Club, 97 F. Supp. 2d 96, 113 (D. Mass. 2000) (finding initial interest confusion “not cognizable” under the First Circuit’s trademark law), aff’d on other grounds, 236 F.3d 57 (1st Cir. 2001) (without discussion of initial interest confusion). 12 Without First Circuit guidance, [*287] this Court is obliged to decide whether a plaintiff pleading initial interest confusion may state a claim for trademark infringement. Based on the twin goals of trademark protection, see note 10, supra, the Court concludes that initial interest confusion can support a claim under the Lanham Act — but only where the plaintiff has plausibly alleged that consumers were confused, and not simply diverted.

11 In this respect, [**30] at least one treatise is simply wrong.. See Deborah F. Buckman, Annotation, Initial Interest Confusion Under Lanham Trademark Act, 183 A.L.R. Fed. 553, ß 3 (2007) (suggesting that only point-of-sale confusion is actionable in the First Circuit) (citing Astra Pharmaceutical Products, Inc. v. Beckman Instruments, Inc., 718 F.2d 1201 (1st Cir. 1983) (rejecting evidence of “temporary” confusion as sufficient to support trademark infringement)). But see Keds Corp. v. Renee Intern. Trading Corp., 888 F.2d 215, 222 (1st Cir. 1989) (noting that “point of sale confusion was not the only issue,” but also the potential confusion of “prospective consumers”). Indeed, in Venture Tape, a recent internet infringement case, the First Circuit observed that the defendant had “lured” consumers to his website by embedding a competitor’s trademark in meta-tags and invisible background text. 540 F.3d at 61 (without addressing initial interest confusion). It did not inquire into whether the record disclosed that consumers had actually purchased the defendant’s products and, if so, whether consumer confusion was sustained up to the moment of sale. Id. Strong circumstantial evidence of pre-sale confusion was [**31] apparently sufficient to sustain summary judgment for the plaintiff.

12 Although the First Circuit cited Brookfield, 174 F.3d 1036, in its Venture Tape decision for the proposition that proof of actual confusion is not essential to fulfill the confusion prong, it did not address or endorse Brookfield’s overall theory of trademark infringement. 540 F.3d at 61-62. Rather, Venture Tape clarified the evidentiary requirements for proving a likelihood of confusion, finding that proof of actual confusion was not necessary to prevail on an infringement claim. Id.; see also infra.

Many cases, including this one, will fall somewhere between the incarnations of so-called initial interest confusion discussed above — the misleading billboard or the choice-enhancing menu. The Court’s task is to distinguish between them. As a preliminary matter, the Court agrees with the many scholars who find the deceptive billboard analogy often inapt in the internet context. See, e.g., Jonathan Moskin, Virtual Trademark Use: The Parallel World of Keyword Ads, 98 Trademark Rep. 873, 896 (2008); Margreth Barrett, Internet Trademark Suits and the Demise of “Trademark Use,” 39 U.C. Davis L. Rev. 371, 427-29 (2006). [**32] Unlike the deceived shopper who is unlikely to get back on the highway, the internet consumer can easily click the ‘back’ button on her web browser and return almost instantly to the search results list to find the sought-after brand. Her added search costs, in other words, may often be very low while her comparative choice among products is greatly expanded.

The crucial question in these cases is one of degree: Whether the consumer is likely confused in some sustained fashion by the sponsored link and the defendant’s website, or whether the link serves instead as a benign and even beneficial form of comparison shopping. The menu analogy described above — where the competing products are clearly distinguished — is not, in and of itself, truly a case of confusion at all, and therefore cannot support an infringement claim. In fact, in order for a plaintiff pleading initial interest confusion to prevail, that confusion must be more than momentary and more than a “mere possibility.” Grotrian, Helfferich, Schulz, Th. Steinweg Nachf. v. Steinway & Sons, 523 F.2d 1331, 1342 n.20 (2d Cir. 1975). As with any alleged trademark violation, plaintiffs must show a genuine and “substantial” likelihood of confusion. See Star Fin. Servs., Inc. v. AASTAR Mortgage Corp., 89 F.3d 5, 10 (1st Cir. 1996) (requiring evidence of a substantial [**34] likelihood of confusion); Astra Pharmaceutical Products, Inc. v. Beckman Instruments, Inc., 718 F.2d 1201 (1st Cir. 1983) (holding that evidence showing a few instances of temporary confusion was insufficient to support trademark infringement). [*288] The alleged confusion must be truly costly to the consumer.

This principle was implicit in the bricks-and-mortar cases that laid the groundwork for initial interest confusion as well as the Ninth Circuit’s billboard analogy, which assumed that the deceived shopper, once diverted, would not get back on the highway. See Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254 (2d Cir. 1987) (competitor’s logo confused oil traders into investing a considerable amount of time and effort into pre-sale negotiations with the defendant); Grotrian, 523 F.2d at 1341-42 (similar mark would entice even sophisticated consumers to consider defendant’s pianos, even if any confusion was resolved prior to any purchase). Where, as here, a plaintiff has alleged a plausible likelihood of confusion based on the overall context in which a consumer performs his internet search, see infra, he has stated a claim for trademark infringement and may proceed on an initial [**35] interest theory.

3. Blue Nile’s Sponsored Links

In assessing the likelihood of confusion, the first question for the Court is, which of the two scenarios above apply to Blue Nile’s sponsored links: Were consumers misdirected by the search results, like a misleading billboard, or simply offered a menu of distinct, competing products? And second, if consumers were potentially misdirected by Blue Nile’s sponsored links, was that potential for confusion sufficient to state a claim for trademark infringement?

Before proceeding, it is useful to review what conduct is presently before the Court. The sponsored link identified by Hearts on Fire in its Complaint resembles the billboard hypothetical above because it involved a direct display of the “Hearts on Fire” trademark. Compl. P 21. Not even Blue Nile contests, at this stage of the litigation, that this allegation states a claim for trademark infringement. Def. Mot. to Dismiss Mem. at 1 (document # 6). The question is whether Blue Nile’s use of the trademark as a keyword trigger for sponsored links whose text did not contain the plaintiff’s trademark is actionable. Compl. P 23.

On the facts alleged in the Complaint, the Court finds that Hearts [**36] on Fire has stated a claim for trademark infringement, even where Blue Nile’s sponsored links did not display the protected mark. In particular, the Plaintiff has offered sufficient allegations to support its claim that consumers were likely confused, and potentially misled, by Blue Nile’s use of the trademark as a trigger for its sponsored links. While these advertisements may not have displayed the mark itself, the surrounding context supplies a sufficient basis to support allegations of consumer confusion at this early stage of the litigation.

Hearts on Fire is a diamond wholesaler, while Blue Nile is an internet diamond retailer; the two companies are not plain or obvious competitors. In fact, the Plaintiff sells its products online through authorized retailers who operate their own websites. A consumer who had just entered a search for Hearts on Fire diamonds might easily believe that the Defendant was one such authorized retailer when presented with Blue Nile’s sponsored link, even if the accompanying text did not contain the trademarked phrase. This conclusion is perfectly commonsensical under the circumstances, even if search engines often return irrelevant results. Moreover, [**37] if the consumer clicked on the sponsored link thinking that he would find the sought-after diamonds at Blue Nile’s website, Plaintiff alleges that on arrival nothing there would immediately alert him to his mistake. Whether this likely confusion was sufficiently sustained on all the [*289] facts for Plaintiff to prevail on its infringement claim is a question for summary judgment. For now, the Plaintiff has alleged enough.

Looking ahead, the First Circuit has identified eight criteria that a court should look to when determining whether a trademark use is likely to confuse an appreciable number of consumers: (1) the similarity of the marks; (2) the similarity of the goods; (3) the relationship between their channels of trade; (4) the relationship between their advertising; (5) the classes of their prospective purchasers; (6) any evidence of actual confusion of internet consumers; (7) the defendant’s subjective intent in using the mark; and (8) the overall strength of the mark. See Venture Tape Corp. v. McGills Glass Warehouse, 540 F.3d 56, 60-61 (1st Cir. 2008) (citing Pignons S.A. de Mecanique de Precision v. Polaroid Corp., 657 F.2d 482, 487 (1st Cir. 1981)). Importantly, though “evidence [**38] of actual confusion is ‘often deemed the best evidence of possible future confusion, proof of actual confusion is not essential to finding likelihood of confusion.'” Venture Tape, 540 F.3d at 61-62 (quoting Borinquen Biscuit Corp. v. M.V. Trading Corp., 443 F.3d 112, 120 (1st Cir. 2006)); see also Brookfield Communications Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1050 (9th Cir. 1999) (“[D]ifficulties in gathering evidence of actual confusion make its absence generally unnoteworthy.”). Indeed, the First Circuit has acknowledged the difficulty of obtaining such evidence in the internet context. See Venture Tape, 540 F.3d at 61-62. Thus, while proof of actual confusion is not required to show trademark infringment, the Plaintiff must still prove likely confusion based on inferences from the other seven factors.

In addition to these familiar factors, under the circumstances here, the likelihood of confusion will ultimately turn on what the consumer saw on the screen and reasonably believed, given the context. This content and context includes: (1) the overall mechanics of web-browsing and internet navigation, in which a consumer can easily reverse course; (2) the mechanics [**39] of the specific consumer search at issue; (3) the content of the search results webpage that was displayed, including the content of the sponsored link itself; (4) downstream content on the Defendant’s linked website likely to compound any confusion; (5) the web-savvy and sophistication of the Plaintiff’s potential customers; (6) the specific context of a consumer who has deliberately searched for trademarked diamonds only to find a sponsored link to a diamond retailer; and, in light of the foregoing factors, (7) the duration of any resulting confusion. This list is not exhaustive, but it identifies what the Court views as the most relevant elements to showing a likelihood of confusion in this case.

UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, SOUTHERN DIVISION

564 F. Supp. 2d 1160; 2008 U.S. Dist. LEXIS 65195

June 18, 2008, Decided

June 18, 2008, Filed

[*1164] ORDER GRANTING PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION

INTRODUCTION

This motion for a preliminary injunction arises out of a trademark dispute between two competing companies, Finance Express LLC Click for Enhanced Coverage Linking Searches(“Finance Express”) and Nowcom Corporation (“Nowcom”), both of which offer software to automate and facilitate financing for automobile dealers and lenders. Finance Express now requests that this Court preliminarily enjoin Defendants from engaging in various practices through the internet that have allegedly caused Finance Express irreparable injury, jeopardizing its reputation and goodwill. Specifically, Finance Express argues that Nowcom must be enjoined from registering infringing domain names, the practice of “keyword stuffing,” (embedding Finance Express’ trademarks in Nowcom’s meta tags and HTML code), and [**3] the practice of “keying” (purchasing “keywords” containing Finance Express’ trademarks from search engines such as Google in order to obtain banner advertisements that appear when those terms are searched). The Court finds that Finance Express has made the requisite showing of a combination of probable success on the merits of its trademark infringement claim and the possibility of irreparable harm if Nowcom is not preliminarily enjoined from this infringing conduct. In engaging in domain [*1165] name registration of Finance Express’ trademarked terms as well as the practices of “keying” and “keyword stuffing,” Nowcom has gained an unearned advantage and has misappropriated Finance Express’ goodwill. Accordingly, these three practices must be enjoined.

FACTUAL BACKGROUND

Finance Express is in the business of providing software to automate and facilitate credit relationships between used automobile dealers and lenders. First Amended Complaint (“FAC”), P 15. Finance Express is the owner of several trademarks at issue: Finance Express, DealTrace(R) 1, Tracker TM, and Tracker DMS TM. FAC, PP 17, 19. Finance Express owns and operates its business out of its main website, <financeexpress.com>, and [**4] uses the internet as a marketing channel for its primary product, Finance Express Dealer Management System, an internet-based technology platform that enables auto dealers to obtain financing for their inventory. FAC, P 16. Finance Express also offers a product known as the Tracker Dealer Management Software (“Tracker DMS”) that it purchased from a competitor, Manheim Interactive, Inc (“Manheim”) on May 7, 2007 (Id. at P 4.) The Tracker DMS product is a web-based dealer management database solution that allows automobile dealers to track their profitability, manage their inventory, conduct sales, and perform other services. The Tracker TM software was owned and operated by Manheim and its predecessors for over ten years until Finance Express purchased it in 2007. (Id. at P 7.) Following the acquisition, Finance Express expected to convert approximately 850 existing Tracker TM dealers to Finance Express’ platform by the end of 2007. (Id. at P 5.) However, Finance Express has only converted approximately 250 dealers at present. (Id. at P 8.)

FOOTNOTES

1 Defendants argue that they were prejudiced by the fact that Finance Express’ motion contains allegations regarding infringement of its trademark [**5] “DealTrace ” as well as allegations regarding Defendants’ practices of “keying” and “keyword stuffing” because those allegations were not included in the First Amended Complaint (“FAC”). Defendants have not shown that they were actually prejudiced by this omission. Plaintiff asserts that it only learned of the infringement of DealTrace(R) as well as Defendants’ practices of “keying” and “keyword stuffing” through discovery that occurred after the FAC was filed. Courts generally give leave to amend the pleadings based on information obtained through discovery, in keeping with Federal Rule of Civil Procedure 15. See Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001). Additionally, Defendants were put on notice of the allegations regarding “keying” and “keyword stuffing” through specific deposition questions and targeted discovery which took place in February and March, 2008. (See Davis Decl, Exs. 2, 14.) Plaintiff’s counsel asserted at the hearing on this motion that the parties also discussed these allegations during their meet-and-confer that took place prior to Plaintiff’s filing of this motion. When the Court asked Defendants’ counsel how Defendants had been [**6] prejudiced by the failure to include these allegations in the operative complaint, he was unable to articulate any specific way in which Defendants had been prejudiced. Moreover, if Defendants had truly been prejudiced by this omission, the Court would have expected them to file an ex parte application for an extension of time to oppose Plaintiff’s motion, which they failed to do. Instead, they fully addressed Plaintiff’s allegations on the merits, indicating that they had adequate notice and an opportunity to respond.

Finance Express alleges that its failure to generate expected revenue after purchasing the Tracker DMS software from Manheim is directly attributable to trademark infringement and dilution, false advertising, and other illegal conduct by Defendants Nowcom Corporation, Rufus Hankey, Don Hankey, Westlake Services, Inc., Hankey Investment Company, and [*1166] Hankey Group (collectively, “Nowcom”). (Huber Decl., P 8.) Nowcom is a direct competitor of Finance Express, and offers its own dealer software solution called “Dealer Desktop.” FAC, P 35. Finance Express asserts that Defendants infringed on its marks by engaging in at least four different types of illegal conduct on the internet: [**7] (1) Nowcom registered a series of domain names with the company Go Daddy which incorporated Finance Express’ trademarks into the domain names (FAC, P 46); (2) Nowcom linked at least two of the infringing domain names to a Nowcom website that contained a misleading “press release” encouraging clients of Finance Express to switch over to Nowcom (Id. at PP 49-52); (3) Nowcom engaged in “keyword stuffing” whereby it used Finance Express’ marks in meta tags and buried HTML code in order to ensure that Nowcom’s website will appear in the list of search engine results a user will find upon searching for Finance Express’ products 2 (Pl.’s Mot. Prelim. Inj., p. 6); and (4) Nowcom used “keying” to ensure that users searching for Finance Express’ products or services would see a banner advertisement for Nowcom along with the search results. 3 Id. Specifically, Nowcom purchased “keywords” from Google and other search engines that contained Finance Express’ trademarks so that when internet users search for those terms, a banner advertisement for Nowcom will appear on the search results screen. 4 Finance Express alleges that this conduct constitutes trademark infringement, false advertising, and [**8] false designation of origin under the Lanham Act and that it also violates the Anticybersquatting Consumer Protection Act and various state laws.

4 Finance Express also argues that Nowcom has engaged in “reverse engineering.” The Court will not address this contention because Finance Express has not provided any evidence in support of this assertion, aside from a conclusory reference in the declaration of Mr. Huber.

Prior to the time Finance Express filed this motion, Nowcom implemented an advertising campaign entitled “6 Reasons to Migrate,” pursuant to which Nowcom used Finance Express’ name and marks in order to divert current and potential customers of Finance Express to Defendants’ competing product, Dealer Desktop. (See Davis Decl., Ex. 3.) One aspect of the campaign was to register domain names with Finance Express’ trademarks contained within them. On May 31, 2008, Nowcom registered the following domain names: <trackerdmsonline.com>, <trackerconversions.com>, <trackerupgrade.com>, <tracker-dms.com>, <besttrackerconversion.com>, <<newtracker- dms.com, <financeexpressdms.com>, as [*1167] well as several slightly modified versions of these domain names. (Davis Decl., Ex. 4.)

On [**10] June 19, 2007, Nowcom launched two websites using the domain names <trackerdmsonline.com> and <financeexpressdms.com>. These websites featured a “Press Release” which “announced” the fact that Finance Express had purchased Manheim’s Tracker DMS and reported that auto dealers were dissatisfied with “the breaking news” because they were paying higher prices to Finance Express than they paid to Manheim. (Davis Decl., Ex. 6.) The Press Release encouraged Finance Express’ customers to “seamlessly migrate” from Manheim Tracker DMS to Nowcom’s Dealer Desktop. (Id.) Although Nowcom’s logo appeared at the top of the webpage, the website gave the false impression that the “Press Release” was being jointly offered by Nowcom and Finance Express because it was found at a website that was confusingly similar to Finance Express’ website (compare <financeexpress.com> and <financeexpressdms.com>) and because it contained headings such as “About Nowcom” and “About Finance Express”. The section entitled “About Finance Express” contained a description of Finance Express’ services and listed its correct website. The Press Release gave the erroneous impression that Finance Express and Nowcom were collaborating [**11] and had jointly decided to offer Nowcom’s Dealer Desktop product as an alternative to Manheim Tracker DMS.

Finance Express first discovered the “Press Release” on Nowcom’s website <trackerdmsonline.com> on October 5, 2007, and responded by sending a cease and desist letter to Rufus Hankey and Nowcom. (Davis Decl., Ex. 4.) The letter demanded that Nowcom remove the website and refrain from using Tracker or the TrackerDMS marks and the name of Finance Express in any way. On that same day, only hours after receiving the cease and desist letter, Nowcom registered <nomoretracker.com>. (Davis Decl., Ex. 7.) On October 9, 2007, Nowcom emailed Finance Express and stated that it had removed the website in question, <trackerdmsonline.com>. On October 26, 2007, Defendant Rufus Hankey emailed the president of Finance Express to “apologize if [his] aggressive marketing caused problems with [Finance Express].” (Davis Decl., Ex. 1.) Despite these representations, on December 14, 2007, Finance Express discovered that the “Press Release” was still available at another one of Defendants’ websites, <financeexpressdms.com>. (Davis Decl., Ex. 4.) Nowcom’s Chief Operating Officer, Robert Lekstrom, asserts [**12] that upon notification by Finance Express, Nowcom removed <financeexpressdms.com>. (Cirsch Decl., Ex. C). Mr. Lekstrom avers that by December 18, 2007, Nowcom had voluntarily cancelled all the allegedly infringing domain names mentioned above. (Id.) Significantly, Nowcom does not dispute that it was responsible for registering the allegedly infringing domain names and linking them to the “Press Release”; instead, Nowcom argues that these acts do not constitute trademark infringement, cybersquatting, false advertising, or trade dilution.

Although Nowcom has apparently removed all of the infringing domain names, Nowcom continues to use Finance Express’ name and trademarks in meta tags and through the practice of “keying.” (See Davis Decl., Exs. 2, 10, 11.) Just as with the domain name allegations, Nowcom does not deny that it engages in keying and keyword stuffing of terms such as “Finance Express,” “Tracker,” and “TrackerDMS. ” Nowcom defends its practices by arguing that they are merely [*1168] competitive advertising and therefore protected as a type of fair use.

LEGAL STANDARD

HN1Go to the description of this Headnote.To obtain a preliminary injunction, the moving party must establish: (1) a combination of probable success on the merits [**13] and the possibility of irreparable injury if relief is not granted, or (2) the existence of serious questions going to the merits and that the balance of hardships tips sharply in its favor. Brookfield Communications, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1046 (9th Cir. 1999). “The two standards set forth above are actually not separate tests but are the ‘outer reaches’ of a single continuum; the greater the balance of hardships tips in favor of the moving party, the less likelihood of success on the merits must be shown.” Apple Computer, Inc. v. Formula Int’l, Inc., 562 F. Supp. 775, 783 (C.D. Cal. 1983), aff’d, 725 F.2d 521 (9th Cir. 1984) (citing Los Angeles Mem’l Coliseum Comm’n v. Nat’l Football League, 634 F.2d 1197, 1201 (9th Cir. 1980).

ANALYSIS

In order to be granted a preliminary injunction, Finance Express only needs to show the requisite combination of probable success on the merits and the possibility of irreparable injury with respect to any one of its claims. Here, the Court finds that Finance Express has met its burden with respect to its trademark infringement claim, and therefore the Court need not address the other claims at this time.

A. [**14] LIKELIHOOD OF SUCCESS

1. Validity of the Claimed Marks

HN2Go to the description of this Headnote.In order to establish trademark infringement under section 32 of the Lanham Act, a plaintiff must demonstrate that the defendant is using a mark confusingly similar to a valid, protectable mark of the plaintiff. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348 (9th Cir. 1979). Section 32(1) of the Lanham Act provides that a person shall be liable for trademark infringement who “use[s] in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.” 15 U.S.C. § 1114(1). Accordingly, Finance Express must demonstrate that (1) its marks are protected; and (2) Nowcom used Finance Express’ marks or a reproduction of those marks in commerce in a manner which is likely to cause confusion. With respect to the first prong, Finance Express has shown, for the purposes of a preliminary injunction, that its marks are valid and protected.

a. Priority of Use

The parties do not dispute that Finance Express is the [**15] senior user of the marks at issue. DealTrace TM was registered with the U.S. Patent Office on July 12, 2005. (Supp. Huber Decl., P 3, Ex. A.) Finance Express purchased Tracker TM and TrackerDMS TM on May 7, 2008, and Manheim sold the Tracker software associated with those marks for almost a decade before the sale. Since the alleged infringement did not take place until May 31, 2008, Finance Express’ use of the marks is senior to that of Nowcom.

HN4Go to the description of this Headnote.When a mark is registered, it is afforded a presumption of ownership and validity pursuant to 15 U.S.C. § 1057(b). Here, Finance Express registered the mark DealTrace TM with the U.S. Patent Office on July 12, 2005. Accordingly, it is presumed to be valid, and Nowcom has not offered any evidence to rebut the presumption of validity. Additionally, the Court finds that the term “DealTrace ” is suggestive because it “requires a mental leap from the mark to the product.” Brookfield Commc’ns., Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1058 (9th Cir. 1999). HN5Go to the description of this Headnote.”If the mental leap between the word and the product’s attribute is not almost instantaneous, this strongly indicates suggestiveness, not direct descriptiveness.” Self-Realization Fellowship Church v. Ananda Church of Self-Realization, 59 F.3d 902, 911 (9th Cir. 1995) (citing 1 McCarthy § 11.21 at 11-108, 109). If a consumer must use imagination or any type of multistage reasoning to understand the mark’s significance, then the mark does not describe the product’s features, but suggests them. Kendall-Jackson Winery v. E. & J. Gallo Winery, 150 F.3d 1042, 1047 n.8 (9th Cir. 1998).

Here, [**17] “DealTrace ” is a software application that allows automobile dealers to manage various transactions. Although the term “DealTrace ” is suggestive of its purpose – to trace deals – it is not immediately apparent what product is at issue or to whom the product is directed. Similarly, the term “Air Care” was found to be a suggestive mark for a service that maintains medical equipment used for administering oxygen because a consumer must use some imagination to understand the significance of the mark. Airco, Inc. v. Air Prods. & Chemicals, Inc., 196 U.S.P.Q. 832 (TTAB 1977). Because there is a mental leap between the concept of tracing deals and the fact that this is a software service intended to aid automobile dealers contracting with lenders, “DealTrace ” is a suggestive mark.

HN6Go to the description of this Headnote.A mark is descriptive if it conveys some knowledge of the characteristics of the product or service. In re MBNA America Bank, N.A., 340 F.3d 1328, 1332 (Fed. Cir. 2003). “A descriptive mark . . . is one that merely describes the ingredients, qualities, or characteristics of an article of trade or a service.” Mil-Mar Shoe Co., Inc. v. Shonac Corp., 75 F.3d 1153, 1157 (9th Cir. 1996). [**18] “Thus, ‘Honey Baked Ham’ is a descriptive term for a ham that has been baked with honey, and ‘Honey Roast’ is a descriptive term for nuts that have been roasted with honey.” Kendall-Jackson Winery, 150 F.3d at 1047 n.8. (citations omitted). These two marks are descriptive rather than suggestive because they do not require the consumer to use imagination or “multistage reasoning” to understand the mark’s significance. Id. The term “Tracker” is descriptive of its service, which is to track automobile dealers’ inventory and sales. This conclusion is bolstered by the fact that hundreds of other companies have used the phrase “Tracker” to identify their software products, [*1170] including within the automobile industry. (See Cirsch Decl., Ex. J.) “TrackerDMS ” is also descriptive because “DMS ” is merely an acronym for “Dealer Management Software,” which clearly describes Finance Express’ product. When two descriptive terms are combined, the question of whether the combined mark is descriptive or suggestive depends on whether the combination of terms evokes a new and unique commercial impression. In re Oppedahl & Laron LLP, 373 F. 3d 1171, 1176-77 (Fed. Cir. 2004). HN7Go to the description of this Headnote.If each component retains its [**19] descriptive significance in relation to the services at issue, the combination results in a composite that is itself descriptive. Id. Here, merely combining “Tracker” with an acronym that accurately and thoroughly describes the product at issue does not evoke a new and unique commercial impression. Therefore, “TrackerDMS ” is also descriptive.

The Court also finds the mark “Finance Express” to be descriptive. The Trademark Trial and Appeal Board held that “Express” is merely descriptive of banking and trust services. See In re Wells Fargo & Co., 231 U.S.P.Q. (BNA) 95, 1986 TTAB LEXIS 130, at *5-6 (TTAB 1986) (holding “EXPRESSSERVICE ” was merely descriptive of banking and trust services). The board noted that the term “express” conveyed to consumers that the services would be fast. Id. at *5. With respect to the term “finance,” it is significant that Finance Express’ trademark application for this term expressly disclaimed any exclusive right to use “finance” apart from “express.” (Cirsch Decl., Ex. D.) When combined, the term “Finance Express” conveys to consumers that they will be able to receive financial services in an expedited manner. Because a consumer need not engage in any multistage [**20] reasoning or use any imagination to understand the significance of the service or goods, the mark is merely descriptive.

Although “Tracker,” “TrackerDMS ” and “Finance Express” are descriptive marks, the Court nonetheless finds that they are protected because Finance Express has demonstrated that they have secondary meaning. HN8Go to the description of this Headnote.”Secondary meaning” is a mental recognition in buyers’ and potential buyers’ minds that products connected with the symbol or device originate from or are associated with the same source. Levi Strauss & Co. v. Blue Bell, Inc., 632 F.2d 817 (9th Cir. 1980). Generally, secondary meaning is proven through evidence related to the amount and manner of advertising of the mark, sales volume, consumer testimony, whether use of the mark was exclusive, and consumer surveys. Yellow Cab, 419 F.3d at 929; Stuhlbarg Int’l Sales Co., Inc. v. John D. Brush & Co., Inc., 240 F.3d 832, 840 (9th Cir. 2001). However, the Ninth Circuit has held on numerous occasions that “evidence of deliberate copying is relevant to a determination of secondary meaning.” Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837, 844 (9th Cir. 1987); see also Auto Fidelity, Inc. v. High Fidelity Recordings, Inc., 283 F.2d 551, 557-58 (9th Cir. 1960); [**21] Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1016 (9th Cir. 1985); Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1263 (9th Cir. 2001). In Auto Fidelity, the court held that secondary meaning could be shown when there is uncontested evidence of deliberate copying. Applying California law, the court reversed the trial court for failing to find secondary meaning when there was “uncontradicted testimony, completely satisfactory to the trial court, that there had been an actual copying” and it was clear that the copier intended to confuse the consumer into believing he purchased the original article. [*1171] 283 F. 2d at 557, 558. The court echoed this sentiment in Transgo, stating “[p]roof of exact copying, without any opposing proof, can be sufficient to establish a secondary meaning.” 768 F.2d at 1016.

In Fuddruckers, however, the Ninth Circuit clarified that evidence of deliberate copying does not shift the burden of proof to the defendant on the issue of secondary meaning. 826 F.2d at 844. The Fuddruckers court also characterized the quoted language from Transgo as dicta, since there was independent evidence of secondary meaning introduced in that case. Id. The [**22] court left open the possibility that, “in appropriate circumstances, deliberate copying may suffice to support an inference of secondary meaning.” Id. (citing Transgo, 768 F.2d at 1015-1016); see also Clicks, 251 F.3d at 1264. The question for this Court, therefore, is what constitutes “appropriate circumstances” to find that deliberate copying supports a finding of secondary meaning. In dealing with this identical question, a court within this circuit held that HN9Go to the description of this Headnote.”it is only appropriate to draw an inference of secondary meaning from intentional copying where the circumstances of the case indicate that the copier, in addition to intending to copy, intended to deceive or confuse the public.” Chrysler Corp. v. Vanzant, 44 F. Supp. 2d 1062, 1081 (C.D. Cal. 1999). The Ninth Circuit implicitly supported this analysis in Fuddruckers, when it stated that copying could not support a finding of secondary meaning if the defendant copied the plaintiff’s design to benefit from some intrinsic quality in the design, as opposed to copying with the purpose of confusing consumers into believing they were purchasing the plaintiff’s product instead of the defendant’s product. The court held:

We decline [**23] to so hold [that evidence of deliberate copying shifts the burden of proof on the issue of secondary meaning]. Competitors may intentionally copy product features for a variety of reasons. They may, for example, choose to copy wholly functional features that they perceive as lacking any secondary meaning because of those features’ intrinsic economic benefits.

826 F.2d at 844-45. Several other circuits have concurred in this analysis. See Thomas & Betts v. Panduit Corp, 65 F.3d 654, 663 (7th Cir. 1995) (“Copying is only evidence of secondary meaning if the defendant’s intent in copying is to confuse customers and pass of his product as plaintiff’s.”); Brooks Shoe Mfg. Co. v. Suave Shoe Corp., 716 F.2d 854, 859-60 (11th Cir. 1983) (holding that proof of intentional copying, in the absence of additional evidence of actual deception, does not “eliminate [] the need for proof of secondary meaning.”)

Here, it is undisputed that Nowcom engaged in deliberate copying by registering domain names containing Finance Express’ marks and name, by purchasing keywords from search engines that contained Finance Express’ name and marks, and by embedding Finance Express’ name and marks in the HTML code [**24] of Nowcom’s website. The key question for a finding of secondary meaning is, “why did Nowcom engage in this copying?” Did it copy in order to benefit from functional features of Finance Express’ trademarks, or, rather, to confuse the public? The Court finds that this situation clearly falls into the latter category. Registering domain names that contain a competitor’s marks is not akin to designing a product that incorporates the physical or design features of one’s competitor. Instead, the only purpose Nowcom could have had in registering Finance Express’ domain name was to direct potential consumers of Finance Express’ products to Nowcom’s website. Likewise, the practices of keying and keyword stuffing were not carried out [*1172] to benefit from the design of Finance Express’ Tracker or TrackerDMS marks, but to direct consumers searching for Tracker software to Nowcom’s website, either through the search results list or through Nowcom’s banner advertisements. Defendants admitted as much in their deposition testimony, when Rufus Hankey was asked the following regarding his registration of Finance Express’ marks within eight different domain names:

Q. [When] Finance Express DMS came up, were [**25] you concerned that some people may think that was the real finance express company?

A. I was just hoping for a hit.

Q. Was there any other use or reason for Nowcom to register all these domain names I went through earlier in the day other than to get a high ranking in Google’s hierarchy?

A. Not to my knowledge.

Q. That was the sole purpose behind those?

A. Yes.

(Deposition Transcript of Rufus Hankey at 65:1-10; 73:13-19). As will be explained more fully in section C, infra, Nowcom engaged in deliberate copying in order to cause “initial interest confusion” among consumers who were seeking out Finance Express’ Tracker DMS products. Nowcom engaged in deliberate copying not to benefit from some intrinsic aspect of Finance Express’ marks, but rather to confuse consumers into believing they were perusing Finance Express’ website instead of Nowcom’s site. These are exactly the type of circumstances anticipated in Fuddruckers in which it is appropriate for the Court to conclude that deliberate copying suffices to support an inference of secondary meaning. Therefore, the marks Tracker TM, TrackerDMS TM, and FinanceExpress TM are valid and entitled to protection under the Lanham Act. 5

FOOTNOTES

5 The Court [**26] notes that its determination regarding the validity of Plaintiff’s marks is only a finding for the purposes of a motion for a preliminary injunction. At trial, the jury will make the final determination regarding whether these marks are truly valid and protected under federal trademark law.

2. Nowcom Used Finance Express’ Marks “In Commerce”

HN10Go to the description of this Headnote.The Lanham Act defines “use in commerce” as “the bona fide use of a mark in the ordinary course of trade,” specifically:

(1) on goods when–

a. [the mark] is placed in any manner on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto, or if the nature of the goods makes such placement impracticable, then on documents associated with the goods or their sale, and

b. The goods are sold or transported in commerce, and

(2) on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce, or the services are rendered in more than one State or in the United States and a foreign country and the person rendering the services is engaged in commerce in connection with the services.

15 U.S.C. § 1127. The Supreme Court has held that the “in commerce” requirement [**27] should be construed liberally because the Lanham Act “confers broad jurisdictional powers upon the courts of the United States.” Steele v. Bulova Watch Co., 344 U.S. 280, 283, 73 S. Ct. 252, 97 L. Ed. 319, 1953 Dec. Comm’r Pat. 424 (1952). Although the Ninth Circuit has not directly addressed the question of [*1173] whether internet activity such as registering domain names, keying, or keyword stuffing constitutes “use in commerce” within the meaning of the Lanham Act, the court presumed without deciding that such activity met the standard in two recent cases. See Brookfield, 174 F.3d at 1053 (finding that the plaintiff was entitled to a preliminary injunction with respect to infringing domain name registration and keyword stuffing because the plaintiff had shown the marks were protected and that there was a likelihood of confusion, without addressing the “use in commerce” requirement); Playboy Enter., Inc., v. Netscape Commc’ns Corp., 354 F.3d 1020, 1024 (9th Cir. 2004) (“Playboy”) (noting that there was no dispute that the plaintiff held the marks in question and that defendant had used the marks in commerce by engaging in the practice of keying). Although the Playboy court did not specifically define “use in commerce” in this context, it is significant [**28] that the court acknowledged the broad reach of the Commerce Clause in trademark cases, stating, “[f]ederal jurisdiction over trademark cases rests on the Commerce Clause, sweeps as broadly as possible, and clearly encompasses the circumstances of this case.” Id. at 1024 n. 11.

Certain other federal courts to address this issue have also concluded that the practice of “keying” meets the “use in commerce” requirement for trademark infringement. See Edina Reality, Inc. v. TheMLSonline.com, 2006 U.S. Dist. LEXIS 13775, 2006 WL 737064 *3 (D. Minn. March 20, 2006) (“While [keyword purchasing is] not a conventional ‘use in commerce,’ defendant nevertheless uses the . . . mark commercially. Defendant purchases search terms that include the . . . mark to generate its sponsored link advertisement. Based on the plain meaning of the Lanham Act the purchase of search terms is a use in commerce.”); Buying For The Home, LLC v. Humble Abode, LLC, 459 F. Supp. 2d 310, 323 (D. N.J. 2006) (“First, the alleged purchase of the keyword was a commercial transaction that occurred ‘in commerce.’ Second, Defendants’ alleged use was both ‘in commerce’ and ‘in connection with any goods or services’ in that Plaintiff’s mark was allegedly used [**29] to trigger commercial advertising which included a link to Defendants’ furniture retailing website.”) The Court agrees with the logic of cases like Edina Realty and Humble Abode in their conclusion thatHN11Go to the description of this Headnote. purchasing keywords containing a plaintiff’s trademarks constitutes a “use in commerce” under the plain meaning of the Lanham Act. Here, Nowcom engaged in numerous commercial transactions using Finance Express’ trademarked terms: (1) Nowcom purchased eight different domain names that included Finance Express’ name and trademarks to drive Finance Express’ potential consumers to Nowcom’s website; (2) Nowcom purchased various keywords containing Finance Express’ marks from Google to ensure that users would view Nowcom’s banner advertisement, again driving Finance Express’ consumers to Nowcom’s site. Thus, Nowcom actually used Finance Express’ trademarks to engage in two levels of commercial transactions; first, Nowcom used the marks to purchase advertising from third parties that was directed at Finance Express’ potential users, and second, Nowcom profited from Finance Express’ marks when it transacted with internet users who were initially searching for Finance Express’ products but ultimately [**30] purchased Nowcom’s products.

Similarly, Nowcom’s practice of embedding Finance Express’ marks in Nowcom’s HTML code to ensure that Nowcom will appear higher on a list of search results for Finance Express’ products also constitutes “use in commerce” of Plaintiff’s marks. Through all three of these web-based [*1174] practices, Nowcom used Finance Express marks to increase the likelihood of engaging in commercial transactions with Finance Express’ potential consumers. As such, Nowcom engaged in “the bona fide use of a mark in the ordinary course of trade.”

3. Likelihood of Confusion

HN12Go to the description of this Headnote.In order to show that it is entitled to a preliminary injunction, Finance Express must also establish that it is likely to be able to show a likelihood of confusion. “[L]ikelihood of confusion is the central element of trademark infringement.” The Ninth Circuit employs an eight-factor test, originally set forth in AMF Inc. v. Sleekcraft Boats, to determine the likelihood of confusion. The eight factors are: (1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by [**31] the purchaser; (7) defendant’s intent in selecting the mark; and (8) likelihood of expansion of the product line. 599 F.2d 341, 348-49 (9th Cir. 1979). “In the internet context, courts must be flexible in applying the factors, as some may not apply. Moreover, some factors are more important than others.” Playboy, 354 F.3d at 1026. “In the context of the web in particular, the three most important . . . factors are (1) the similarity of the marks; (2) the relatedness of the goods or services; and (3) the simultaneous use of the Web as a marketing channel.” GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1205 (9th Cir. 2000). Applying these three factors here, Finance Express has shown that Nowcom’s practices of domain name registration of Finance Express’ marks, keyword stuffing and keying creates a likelihood of confusion.

a. Domain Name Registration of Plaintiff’s Marks

Turning to the three most important Sleekcraft factors in the internet context, the Court begins by comparing the allegedly infringing mark to the protected marks. HN13Go to the description of this Headnote.”The similarity of the marks will always be an important factor. Where the two marks are entirely dissimilar, there is no likelihood of confusion. . . [**32] [T]he more similar the marks in terms of appearance, sound, and meaning, the greater the likelihood of confusion.” Brookfield, 174 F.3d at 1054. In the context of domain name registration of a plaintiff’s marks, the court compares the allegedly infringing domain name with the claimant’s trademark, not with the claimant’s own domain name. Id. at 1055. Here, the correct comparison is between Finance Express’ protected marks (Finance Express TM, Tracker TM, and Tracker DMS TM) with the domain names registered by Nowcom (<trackerdmsonline.com>, <trackerconversions.com>, <trackerupgrade.com>, <<tracker- dms.com>, <besttrackerconversion.com>, <newtracker-dms.com, and <financeexpressdms.com>). There is no question that “Finance Express” is strikingly similar to “financeexpressdms, ” and that “Tracker DMS ” is almost identical to “tracker- dms ” and very similar to “trackerdmsonline.com. ” The differences between Finance Express’ marks and Nowcom’s domain names are inconsequential in light of the fact that Web addresses are not caps-sensitive and that the “.com” top-level domain signifies the site’s commercial nature. Id. Additionally, the various modifications of “tracker” employed by Nowcom [**33] (such as “trackerupgrade.com, ” “trackerconversions.com,”), while not as similar to the Tracker mark as the previously discussed domain names, are still alike enough for the Court to conclude that this first factor weighs in favor of Finance Express.

[*1175] With respect to the next important factor, the relatedness of the products and services offered, this factor too weighs in favor of Finance Express. HN14Go to the description of this Headnote.”Related goods are generally more likely than unrelated goods to confuse the public as to the producers of the goods.” Id. (citing Sleekcraft, 599 F.2d at 350). In light of the striking similarity of the marks, if they were used with identical products or services, likelihood of confusion would follow as a matter of course. See Lindy Pen Co. v. Bic Pen Corp., 796 F.2d 254, 256-57 (9th Cir. 1986). Here, it is undisputed that the parties are direct competitors in the automotive finance technology industry. (See Davis Decl., Ex. 17 (Nowcom’s Answer) at P 29; Ex. 18 (Rufus Hankey’s Answer) at P 29.) Finance Express’ DMS internet-based platform and dealer management software enables dealers to obtain financing for their inventory. Nowcom’s Dealer Desktop product is also a dealer management software [**34] which includes a dealer inventory tracking function. Opp’n, p. 6. Moreover, the relatedness of the products is evidenced by the fact that Nowcom admits to pursuing the exact same clients as Finance Express – used car dealers seeking to automate relationships with their lenders. The fact that Finance Express’ products are only offered subject to a periodic fee, while Nowcom’s products are offered as a one-time sale, is not a material difference between the two products. See GoTo.com, 202 F.3d at 1207 (competing internet search engines sufficiently similar products to create a likelihood of confusion).

Third, Finance Express and Nowcom are engaged in the simultaneous use of the internet as a marketing channel, “a factor that courts have consistently recognized as exacerbating the likelihood of confusion.” Brookfield, 174 F.3d at 1057 (citations omitted).

Given the striking similarity between the domain names registered by Nowcom and Finance Express’ marks, the relatedness of the products and services accompanied by those marks, and the parties’ simultaneous use of the Web as a marketing and advertising tool, there was a significant likelihood of consumer confusion when users searching [**35] for “financeexpress ” were directed to Nowcom’s website <financeexpressdms.com>. Specifically, Nowcom caused a type of consumer confusion known as “initial interest confusion,” which is actionable under the Lanham Act. Brookfield, 174 F.3d at 1063. “Initial interest confusion” is defined as “consumer confusion that creates initial interest in a competitor’s product. Although dispelled before an actual sale occurs, initial interest confusion impermissibly capitalizes on the goodwill associated with a mark and is therefore actionable trademark infringement.” Playboy, 354 F.3d at 1025 (citing Brookfield, 174 F.3d at 1062-63). When consumers searched for Finance Express’ website or products, they were unknowingly driven to Nowcom’s “Press Release,” which “announced” the fact that Finance Express had purchased Manheim’s Tracker DMS and reported that auto dealers were dissatisfied with “the breaking news” because they were paying higher prices to Finance Express than they paid to Manheim. The Press Release encouraged Finance Express’ customers to “seamlessly migrate” from Manheim Tracker DMS to Nowcom’s Dealer Desktop. Although Nowcom’s logo appeared at the top of the webpage, the website [**36] gave the false impression that the “Press Release” was being jointly offered by Nowcom and Finance Express because it was found at a website that was confusingly similar to Finance Express’ website and because it contained headings such as “About Nowcom ” and “About Finance Express”. [*1176] Even if consumers were ultimately able to discern that they were purchasing Nowcom’s products rather than those of Finance Express, Nowcom’s infringing domain name registration created initial interest confusion which impermissibly capitalized on Finance Express’ goodwill.

b. Keyword Stuffing

Finance Express has also met its burden of showing a likelihood of confusion with respect to Nowcom’s practice of “keyword stuffing,” or embedding Finance Express’ marks in the HTML code and meta tags of Nowcom’s website. In Brookfield, the Ninth Circuit addressed the issue of whether using a plaintiff’s marks in meta tags creates a likelihood of confusion sufficient to constitute trademark infringement. As a preliminary matter, the court noted that trademark infringement claims relying on meta tag usage are “not . . . standard trademark case[s] and do [] not lend [themselves] to the systematic application of the eight [**37] [Sleekcraft] factors.” 174 F.3d at 1062 n. 24. Therefore, the court did not attempt to fit its discussion into one of the Sleekcraft factors. Id. The court noted although that the use of protected marks in meta tags does not create as much confusion as when protected marks are used in domain names, it may still “result in what is known as initial interest confusion.” Id. at 1062. The court explained that meta tags allow web surfers who are looking for plaintiff’s products to be taken by a search engine to defendant’s website. Once there, web surfers will find a product similar enough to the plaintiff’s that a sizable number of them who were looking for the plaintiff’s product will simply decide to use the defendant’s product instead. Id. “Although there is not source confusion in the sense that consumers know they are patronizing [defendant] rather than [plaintiff], there is nevertheless initial interest confusion in the sense that, by using [plaintiff’s marks] to divert people looking for [plaintiff’s product] to its website, [Defendant] improperly benefits from the goodwill that [plaintiff] developed in its mark.” Id. The Ninth Circuit ultimately concluded that the Lanham Act barred [**38] the defendant from including in its meta tags any term confusingly similar with the plaintiff’s mark, and therefore reversed the lower court’s denial of preliminary injunction to the appellant on this ground. Id. at 1065.

Here, there is no question that Nowcom has used terms in meta tags and within its HTML code which are confusingly similar to Finance Express’ protected marks. While Nowcom does not dispute these allegations, it argues that its conduct is protected as “fair use ” of Finance Express’ marks, relying on language to that effect in Brookfield. While it is true that the Brookfield court stated that it was not in any way restricting a defendant’s right to use terms in a manner that would constitute fair use under the Lanham Act (174 F.3d at 1065), Nowcom’s use of meta tags does not fall into this protected category. The Brookfield court distinguished the fair use case Playboy Enters. v. Welles (“Welles”), where Playboy sought to enjoin former Playmate of the Year Terri Welles from using “Playboy” or “Playmate” on her website. 7 F. Supp. 2d 1098, 1100 (S.D. Cal. 1998). Welles’ website advertised the fact that she was a former Playmate of the Year, but minimized the use of Playboy’s [**39] marks and contained numerous disclaimers stating that her site was neither endorsed by nor affiliated with Playboy. Id. The district court held that Welles was using “Playboy” and “Playmate” not as trademarks, but as descriptive terms fairly and accurately describing her webpage, and that her use of “Playboy” as a meta tag was a good faith attempt to index the content of her site. Id. at 1103-04. In the [*1177] instant case, Nowcom’s use of Finance Express’ marks as meta tags is much more in line with the conduct of the defendant in Brookfield than the defendant in Welles. Nowcom is not using the terms “manheim dms, ” “manheim tracker,” “tracker manheim, ” “finance express DMS, ” and “tracker DMS ” as descriptive terms to fairly and accurately describe its webpage. Nowcom does not sell Tracker, TrackerDMS, or any product formerly owned by Manheim; it sells Dealer Desktop. Therefore, its use of those terms cannot be characterized as “descriptive,” unlike Welles’ use of the trademark “Playmate.” Moreover, Nowcom made no attempt to minimize the use of Finance Express’ marks and its site contains no disclaimers stating that Nowcom is neither endorsed by nor affiliated with Finance Express. Because [**40] Nowcom’s use of Finance Express’ marks in meta tags is intended to confuse consumers and to capitalize from Finance Express’ goodwill rather than to accurately describe Nowcom’s products, it is not a “fair use ” under the Lanham Act.

c. Keying

Finally, the Court finds that Finance Express has established a likelihood of confusion with respect to its allegations regarding Nowcom’s practice of “keying,” or purchasing keywords containing Finance Express’ marks to ensure that web users searching for those terms will be exposed to Nowcom’s banner advertisement. In Playboy, the court addressed the issue of whether the plaintiff had established that the defendant’s practice of keying demonstrated a likelihood of confusion sufficient to withstand summary judgment. The court applied the Sleekcraft factors and determined that the Plaintiff had established there was a genuine issue of fact as to whether the defendant’s keying and related use of banner advertisements caused initial interest confusion. 354 F.3d at 1029. The court then addressed the defendant’s fair use defense and concluded that having concluded that a genuine issue of fact existed regarding likelihood of confusion, the defendant [**41] could not establish fair use, since “[a] fair use may not be a confusing one. ” Id.

Applying the three most relevant Sleekcraft factors to Nowcom’s “keying” activity, they once again favor Plaintiff. Nowcom has purchased keywords which are identical or strikingly similar to the trademarks held by Finance Express, it offers services and products which are highly related to those offered by Finance Express, and both parties engage in simultaneous use of the Web as a marketing channel. 6 Just as with the keyword stuffing, the practice of keying may initially confuse consumers into clicking on Nowcom’s banner advertisement. Once the consumer arrives at Nowcom’s site, he may realize he is not at a Finance Express-sponsored site. However, he may be content to remain on Nowcom’s site, allowing Nowcom to misappropriate Finance Express’ goodwill. Id. at 1025. “Such use is actionable.” Id. at 1026.

FOOTNOTES

6 The other Sleekcraft factors also generally favor Finance Express: its marks are not weak or generic; the relevant “goods” are the links to the websites being sought and the goods available at those sites, and the parties’ goods are in extremely close proximity since Nowcom’s banner ad appears next [**42] to Finance Express’ website; the degree of consumer care factor is neutral since the parties presented no evidence in this area; Nowcom’s intent in selecting the mark was to initially confuse consumers into clicking on its ad; and the likelihood of expansion of product lines factor is irrelevant, since the products at issue are related. See Playboy, 354 F3d at 1029.

Nowcom attempts to distinguish Playboy from the instant case on the grounds that the banner advertisements in [*1178] Playboy were unlabeled, and the court made note of this fact by stating that it was not “addressing a situation in which a banner advertisement clearly identifies it source with its sponsor’s name. . . Doing so might eliminate the likelihood of initial interest confusion that exists in this case.” 354 F.3d at 1030 & n. 44. While it is true that a clearly-labeled banner advertisement might not create initial interest confusion, Nowcom’s banner advertisement cannot be fairly characterized as one which “clearly identifies its source with its sponsor’s name.” Nowcom’s banner advertisement states in large, underlined font: “Manage Your Dealership.” Underneath that heading, on the second and third lines of the advertisement, [**43] it states in smaller font “Use Just One Software Program. Get A Free Trial of Dealer Desktop.” On the fourth line down, in even smaller font, appears a link to Nowcom’s website: “www.Nowcom.com. ” (See Cirsch Decl., Ex. F.) This advertisement is not clearly labeled. The only indication as to the identity of the advertisement’s sponsor lies in the website address, which is located in small print on the last line of the advertisement. While Nowcom’s argument might be tenable if its name appeared in large font in the first line of the advertisement, or perhaps even if it appeared anywhere in the text of the advertisement, this is not the case. A website address located in small font at the bottom of the advertisement is not sufficient to overcome the initial interest confusion that results from Nowcom’s practice of keying.

In addition to its fair use defense, Nowcom also argues that Finance Express is not entitled to a preliminary injunction because it cannot point to any continuing harm, since Nowcom removed the infringing domain names and the objectionable “Press Release.” First, this argument is misplaced because it ignores the fact that Nowcom continues to engage in trademark infringement [**44] via its practices of keyword stuffing and keying. Second, the Court finds that it may consider past conduct on a motion for a preliminary injunction if the plaintiff can demonstrate either continuing harm or a threat of repeated injury in the future. See Imagineering, Inc. v. Kiewit Pacific County, 976 F.2d 1303 (9th Cir. 1992) (denying the plaintiffs’ prayer for injunctive relief because the complaint failed to allege that the “plaintiffs would suffer the same purported injury in the future.”) Here, Finance Express has shown both. See Section B, infra.

Simply stated, Finance Express had demonstrated a strong likelihood of success on the merits of its trademark infringement claim by establishing that its marks are protected and that Nowcom used its marks or colorable imitations of its marks in commerce in a manner that is likely to cause consumer confusion. Finance Express has shown that it is likely to succeed on its trademark claim not only by relying on past conduct (the domain name infringement) but also due to Nowcom’s ongoing infringement in the form of “keying” and “keyword stuffing.”

B. IRREPARABLE INJURY

Finance Express has met the other requirement for preliminary injunctive [**45] relief, irreparable injury, for two reasons. First, HN15Go to the description of this Headnote.irreparable injury may be presumed from a showing of likelihood of success on the merits of a trademark infringement claim. See Metro Publ’g, Ltd. V. San Jose Mercury News, 987 F.2d 637, 640 (9th Cir. 1993). Second, Nowcom has engaged in a pattern of conduct that provides good cause for the Court to find that Nowcom will continue to infringe on Finance Express’ protected marks unless Nowcom is preliminarily enjoined. Despite the fact that Finance Express sent a [*1179] cease and desist letter to Nowcom back in October, 2007, and despite Nowcom’s assurances shortly thereafter that it would remove all infringing websites at that time, the infringing websites were not completely removed until mid-December, 2007, after Finance Express filed its complaint. Although it appears that Nowcom has not registered any more infringing domain names since that time, its infringing activity has not stopped. Instead, it has merely morphed into other conduct such as “keying” and “keyword stuffing.” The common thread throughout all of this conduct is that Nowcom continues to misappropriate and profit from Finance Express’ goodwill, albeit in different forms. [**46] Finance Express has demonstrated that this conduct will probably cause irreparable injury to Finance Express’ trademarks and reputation, if preliminary relief is not granted.

CONCLUSION

Accordingly, the Court will enjoin Nowcom from engaging in the following conduct: (1) registering, maintaining the registration of, operating, owning, promoting, advertising, marketing, and/or utilizing any website whose domain name and/or content utilizes any of Finance Express’ marks, including Tracker, TrackerDMS, DealTrace, and Finance Express; (2) using any of these four marks or combinations of these marks as meta tags or in buried HTML code; (3) purchasing “keywords” containing these four marks or combinations of these marks to drive internet traffic to banner advertisements for Defendants. The Court will not require Defendants to issue a curative admission on its main website. The Court also will not at this time order Defendants to cease any efforts at reverse engineering, given the lack of evidence in support of this allegation.

Finance Express is hereby ordered to submit a proposed preliminary injunction, consistent with this order. In accordance with HN16Go to the description of this Headnote.Federal Rule of Civil Procedure 65(c), which [**47] provides that “[t]he court may issue a preliminary injunction . . . only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained,” the proposed injunction must require that Finance Express post an adequate security. 7

FOOTNOTES

7 Finance Express is also instructed to submit a second amended complaint within twenty days of this order that incorporates its new allegations regarding its trademark DealTrace(R) as well as allegations regarding Nowcom’s practices of “keying” and “keyword stuffing.”